Kiplinger: Credit Woes Confined to Wall Street

'A Wall Street Issue'

"For the 8th straight month since the Federal Reserve declared the existence of a 'credit crunch', no evidence of credit problems has appeared on Main Street. It is a Wall Street issue. Regular borrowing activity was reported by 33 percent of the owners, down one point from February and typical of readings for the past 15 years."

Credit is the lifeblood of the economy. Because of their losses in the housing market, banks have been more reluctant to lend. But one observer says the situation does not constitute a credit crisis — or even a credit crunch.

Knight Kiplinger, editor in chief of The Kiplinger Letter, says a credit crunch is defined as "the difficultly of normally healthy businesses to get credit from their traditional lending sources."

But he says the credit problem, which has been cited by the Federal Reserve, seems to be largely affecting large corporations, and many companies and business sectors are finding plenty of borrowing opportunities. For example, the owner of a small medical-device plastics company in Northern California is "adding employees, increasing production," Kiplinger tells Renee Montagne. "She has three banks competing for her business."

A survey by the National Federation of Independent Business, a group of a million U.S. small-business owners, said "no evidence of credit problems has appeared on Main Street. Access to credit is about normal." Only 2 percent of the respondents cited credit cost and availability as their top business problem, Kiplinger says.

However, a recent survey by Duke University and CFO Magazine said about one-third of company finance chiefs say the credit crunch is affecting their business. Kiplinger says that survey represents findings from "much larger corporations."

Only Certain Industries Affected

"This is a problem of a lot of large corporations seeking very large loans for elaborate, intricate merger and acquisition deals involving several banks," Kiplinger says. "Yes, there are credit access problems specific to certain industries — obviously relating to homebuilding [and] auto parts.

"But there are some very, very successful American business sectors today — agriculture, biotech, medical devices, export-oriented businesses — that are doing very well," he says. "Their access to credit is fine."

Credit problems could eventually hit a wider number of businesses, as banks become more reluctant to lend to even well-run companies.

"In a softening economy, more businesses will find their revenue and earnings under pressure, and, yes, it'll be harder for them to get money," Kiplinger says. "That is normal in a business downturn.

"But we've been talking about this credit crisis now for a year or so ...," he says. "For most businesses and most banks around America — not Wall Street — there is not a credit crisis at the present time. And it's not likely to get really bad."

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