RENEE MONTAGNE, host:
The troubles in the banks are trickling down to small businesses which are the key source of jobs. In fact, they've created the majority of new jobs over the last 15 years, according to the government. One would think small businesses would be crucial to an economic recovery. But at this moment, small business owners say banks and credit card companies are not giving them the credit they need, and that's keeping them from growing and hiring.
NPR's Chris Arnold reports.
CHRIS ARNOLD: Even in the midst of this severe recession, there are some businesses that are doing okay. Some see opportunities, and with the holidays coming up they want to hire more workers. But to do that, many need to borrow money. They need credit - and that's a lot harder to come by these days.
Mr. CARLO BACCI (Owner, The Chocolate Truffle): So, we're doing peanut butter cups today?
Unidentified Man: Yeah.
Mr. BACCI: Caramel I made yesterday.
Unidentified Man: Yeah.
Mr. BACCI: We got to make toffee.
ARNOLD: Carlo Bacci is checking in with his workers at his small chocolate factory in Swampscott, Massachusetts. There are big metal vats of chocolate here getting warmed and stirred by machines. Carlo and his wife Erin run the family business, The Chocolate Truffle. They have three retail stores, they sell to other stores and they make just about anything you can think of out of chocolate.
Now, what are these? These look like men's shoes. They're, like, size eight or something.
Mr. BACCI: Yeah, that'll get filled with chocolates and be given as a gift.
ARNOLD: And the whole shoe is made out of chocolate.
Mr. BACCI: Yes, yes.
ARNOLD: The business has been slowly growing, despite the downturn. And to keep growing the Baccis actually decided to sell their house to raise money to invest back into the business. They have three kids, and they really like their house.
Ms. ERIN BACCI (Owner, The Chocolate Truffle): You had a fabulous backyard. In the basement of the house, Carlo had built a stage for the girls so they can put on their little shows. It's a lot of crying in regard to selling the house. It was… I'm starting to cry now.
ARNOLD: By selling the house, the couple's been able to open up two more retail stores but they still need money to gear up for the holidays and buy more chocolate and supplies. They have always done that on their small business credit cards. But now that's much harder to do.
Carlo says take his American Express card - he's been paying it down so he'd have some credit available on it to borrow against the holidays.
Mr. BACCI: But lately, since the crisis, we've been cut off. And every time we pay down our card, our credit limit gets reduced.
ARNOLD: Some analysts think that this same problem that the Baccis are facing could really slow down the entire economic recovery. This business employs 14 people - they'd like to hire three or four more - but they say they can't because credit is too tight. So, if you magnify that across tens of thousands of businesses, that's a lot of jobs.
One of the problems is that overall, banks are just lending less money because many of them had lost so much money during this financial crisis.
Mr. DAVID KOTOK (Chief Economist, Cumberland Advisors): They haven't raised enough to get back to where they were. They're short.
ARNOLD: David Kotok is chief economist at Cumberland Advisors. He says the banks are capital-constrained. But he also says that credit is always tougher to get during times of economic turmoil. And at least in this recession, for small businesses that can get loans, borrowing is actually cheaper. Interest rates are low, and that's a big difference this time around.
He says, if you look back to the 1970s and '80s, interest rates were much, much higher.
Mr. KOTOK: The interest rates, they were absolutely killers in terms of the way they compressed business activity.
ARNOLD: Back then, the National Association of Independent Businesses did a survey. They asked businesses what was the number one problem that they were facing. About 40 percent cited financing and interest rates as number one. This time around, there are lots of other problems, and so far only five percent list credit as their top concern - but that might change.
Pete Kyle is a finance professor at the University of Maryland. He says many businesses, right now, are not trying to borrow money. They're still hunkered down.
Professor PETE KYLE (Finance, University of Maryland): But, if the economy turns around and starts growing, then businesses are going to want more credit. And that's when the test is going to come. And so as economic growth tries to pick up, you're going to start seeing more complaints from small business about access to credit.
ARNOLD: And Kyle says that could be a serious drag on the recovery. Kyle thinks that the government should force banks to raise more capital so they could loan out more money. David Kotok disagrees. He thinks at this point the market should just sort it out.
Meanwhile, the American Bankers Association says that business owners like the Baccis, with their chocolate factory, should shop around. Some banks might not be very eager to loan money, but others took much smaller losses in recent years and are much more willing to lend right now.
Chris Arnold, NPR News, Boston.
MONTAGNE: And this is MORNING EDITION from NPR News.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.