Microeconomics through the eyes of a microbrewer
A brewer in Oakland says he'd love to expand, if he could only get a loan. His story illustrates a common complaint among small business owners.
Kai Ryssdal: There are macroeconomic stories -- the Federal Reserve today and its pledge to stay the course is one.
And there are microeconomic stories. The day-to-day realities of businesses and consumers getting by. The Small Business Administration reported not too long ago that lending to small businesses was down last year.
Charlie Mintz explains what that means from a microbrewery in Oakland, Calif.
Charlie Mintz: At Linden Street Brewery in West Oakland, a red lager is fermenting inside a shiny kettle that looks sort of like a giant, silver crayon on its head. Nearby, co-owner Adam Lamoreaux surveys a drum-shaped cauldron in need of some scrubbing.
Adam Lamoreaux: Oh, right now we're cleaning the brew house. Basically after each brew we have to clean all the pipes and hoses, and obviously the tanks.
Mintz: So this is the fun part?
Lamoreaux: Brewing is a whole lot more cleaning than actually making beer.
Lamoreaux, 38, is a mellow former Navy engineer with a shaved head and a Rasputin beard dangling over his collar. His wife hates it, but the beard's a charm, safe from the razor until the day Linden Street Brewery, which opened in 2009, stops growing.
Lamoreaux: Every year we grow 200 to 300 percent.
Linden Street Brewery produces 2,500 barrels a year -- that's two kegs to a barrel. It has two employees. But Lamoreaux believes he can grow. His goal: 20,000 barrels a year, and 20 employees. But to get there he needs a loan.
Lamoreaux: So right now we probably need about a million dollars for the next phase that we're going through.
And banks, Lamoreaux says, don't want to give it to him. In 2009, his community bank, with a guarantee from the Small Business Administration, loaned him $200,000. But since then, the tap has been dry.
Lamoreaux: We talked to other community banks, and commercial banks, and then these economic development corporations.
In total, almost a dozen institutions. They all said no.
Lamoreaux: It gets pretty depressing really.
So why can't a business like Linden Street get a loan? We asked a banker.
Kimberly Hett: We look at a variety of different factors. There really is no one formula.
Kimberly Hett works for Chase Bank in Oakland. It's not, we should say, one of the banks Lamoreaux approached.
Hett: We do look at first and foremost the business's cash flow. The second piece that we look at is collateral.
Another factor is debt. Remember that $200,000 loan Linden Street has? In the view of banks, that makes it riskier. But Lamoreaux says, it's a risk banks ought to be taking.
Lamoreaux: You know, hey some entrepreneurs may not make it. But some do.
Hett says her employer is lending plenty to small businesses. Chase defines a small business as one with up to $20 million in revenue. Hett says Chase, this year, is on pace to make $20 billion in these kinds of loans, up from the $17 billion in 2011. The other major banks say their small business loan portfolios are up too.
James Wilcox: There has been considerable discussion about whether in fact there is a credit crunch under way.
James Wilcox is a professor of Economics at Berkeley's Hass School of Business, and a former advisor to the Federal Reserve. He says it's clear that credit is tight for small businesses. Less clear though, whether it's too tight.
Wilcox: Despite the various kinds of data we've got, it's a very difficult proposition to decide whether there's a substantial number of credit worthy businesses who can't get credit on the terms that would seem warranted.
So are we a nation of Adam Lamoreauxs? A survey conducted by the Small Business Majority, an advocacy group, found that six out of 10 small companies had experienced difficulty getting credit.
Back at Linden Street Brewery, the question is more than an academic. Lamoreaux says he's going to keep chugging away, and hope the banks loosen up. If that doesn't work out, he has a back-up plan: A beer bar, in China.
Lamoreaux: I'm halfway joking with people when I tell them. I probably would educate the new millionaires of Shanghai what good beer is all about. And I probably would be a millionaire by now if I'd done that.
Of course if that were the case, he could lend himself the money.
In Oakland, I'm Charlie Mintz for Marketplace.