Karen Poole

Chattanooga woodworker Matt Sears sits on a stack of lumber in his shop and wonders where he’ll go from here.

Three years ago, the 29-year-old woodworker started HS Designs with no investment and $5,000 on a credit card.

Today, the credit card is paid off and the business grossed $150,000 last year. But the small business loan Mr. Sears needs for expansion is harder to get now than it would have been a year ago. Despite his favorable credit rating, the bank would still require him to put down $30,000 on a small business loan of $150,000.

“If everyone who paid me monthly would pay me off right now, I would have that money,” he said. “But it is so dispersed among all these people who are also trying to pull it all off, it just isn’t readily available.”

As Wall Street’s credit crunch trickles down, small business owners are feeling the pinch. As sales slow down, they trade plans for expansions to focus on day-to-day expenses such as payroll and buying inventory. Some are reaching out for loans and accessing lines of credit to pay those expenses, while others are cutting employees’ hours and turning to fellow business owners to swap goods and services to save cash.

“It’s becoming exceedingly difficult” for small businesses to keep their inventories up, said Kevin Maxfield, director of the Small Business Development Center, a business incubator in Chattanooga. “People are having to borrow against assets they didn’t have to borrow against in the past.”

Mr. Sears’ challenge in getting a loan is not a new one, it’s just one that some lenders have ignored, Mr. Maxfield said. Bank officials also say that most small business loans typically require a down payment, with 20 percent being standard. But in recent years, some banks and mortgage companies have financed loans with no down payment.

“It’s just changed in the last few months because it got out of control and that’s what created this whole mess,” said Frank Hughes, president of Cornerstone Community Bank.

A few months ago, Mr. Sears crafted a bookcase for Web design firm Coptix Inc., and in exchange they will create a Web site for HS Designs. Mr. Sears could have sold the bookcase — made 100 percent from reclaimed scrap wood — for $10,000, but trading it saved him cash he didn’t have for Web site design.

Bankers such as Mr. Hughes also worry that if people begin to pull cash out of their accounts, it will be even harder for people like Mr. Sears to get a loan.

“As long as individuals leave their deposits in the banks, there will be funds to lend to small businesses,” he said. “If all the money disappears and goes into the mattresses, there will be less money to lend.”

Karen Poole, owner of new and used book store A Novel Idea in North Chattanooga, said the tightening of the economy has led her to trim hours for her staff of five part-time employees and to be pickier about the books she stocks.

“Now, unless it is pretty much a proven seller, I am not going to buy it,” she said.

Family owned businesses such as the Grapevine also are tightening their belts. Daniel Shartle’s family owns the gift store, which has four locations in the Chattanooga area.

“It’s definitely been slower, sales are definitely down from where they were a year ago,” Mr. Shartle said. “When you’re not having sales, it’s not easy.”

The squeeze is also felt by small businesses outside Chattanooga. In North Georgia, small, locally owned businesses make up 90 percent of the local economy, said Stacey Mauer, president of the Walker County Chamber of Commerce. Business owners are telling her they have seen a slowdown as consumers hold onto their money, she said.

“The thing with small business is it is local,” Ms. Mauer said. “If business isn’t going well, it’s not necessarily affecting someone in corporate America in another city, it’s affecting these local people.”

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