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Small US Businesses Feel Pinch of Tightened Credit

As the U.S. Federal Reserve System announced measures to ease the credit crisis Tuesday, small business owners around the United States say the tight credit market is hurting them. Mike O'Sullivan reports from Los Angeles, the financial crisis is affecting nearly all businesses, including car dealers, fast-food restaurants, and retail stores.

Alfred Minas, an Armenian immigrant, runs a Los Angeles shoe repair shop, and he says business is terrible. "Seems like people are panicking. People with money, they're holding back. People with no money, still they don't have money. Business is just going down day by day," he said.

Economist Eduardo Martinez of the Los Angeles County Economic Development Corporation says some businesses are feeling the squeeze at both ends, with banks reluctant to lend and few customers willing to spend any money. "Especially car dealers, people who are dealing in furniture, they've been hit pretty hard by the downturn in consumer spending, not having that many customers go to their showrooms, but now, they're having a hard time getting the funds to be able to order products to fill their showrooms."

He says the downturn is hurting franchise businesses like McDonald's, which have been investing in new equipment to offer high end coffees. Banks are reluctant to lend to franchise owners for the upgrade.

Martinez says the uncertainty in European credit markets is also hurting local business because major British, German, French and Dutch firms have Los Angeles operations in entertainment, banking, finance, and manufacturing.

Some business owners hope to ride out the storm. Brothers Peter and Charlie Woo, immigrants from Hong Kong, founded Megatoys 20 years ago. The company manufactures toys in Asia, imports them to the United States and exports them to Latin America. Chief executive Charlie Woo says the company foresaw a downturn and took preventive action by securing its line of credit.

"And also, we've got a very widespread customer base. We sell to large retailers such as Wal-Mart and K-Mart, and we also sell to the small mom-and-pops [family-owned stores] as well as export to Central and South America. In general, everybody's quite pessimistic, but we've got a pretty big customer base."

He adds that a weak U.S. dollar hurts the import businesses.

Iranian immigrant Farhad Besharati offers tours to Europe through his business called Atlantic Tour and Travel. He says the credit crisis means empty seats on airlines. "When people cannot apply for a loan or credit, definitely it affects all businesses. Because before, they used to get home equity [loan] or credit card or something and then they could travel and they paid slowly, but now it's impossible."

Economist Eduardo Martinez says most businesses need to borrow to stay in business. And with banks reluctant to lend, even businesses with low overhead expenses are faced with customers reluctant to part with their money.