By J.B. Smith and Mike Copeland

Tribune-Herald staff writers

It’s a scary time for small business.

Once-mighty banks are on their knees begging for government rescue. Spooked lenders are tightening credit from Wall Street all the way down to the corner bank on Main Street.

So how’s business in Waco? That depends on who you ask.

“It’s not worth a flip,” says Frank Holder, at Holder’s Auto Sales, 801 S. Valley Mills Drive, using more colorful language.

“I can’t be any plainer,” he says. “Credit is tightening. We take credit applications, but we don’t have in-house financing. People that a long time ago had real good credit, for some reason, their credit has gone backward. Not as many people can qualify as they used to.”

But many other small businesses say things could be a whole lot worse. The Tribune-Herald this week interviewed more than 30 small business owners in fields of manufacturing, food service, furniture, retail, agriculture, franchising, automotive, banking and real estate.

Many said they are grappling with soft sales and rising expenses for food, fuel and insurance. Those selling homes and cars seem to be especially hard hit by the recession.

Still, most business owners said Waco seems to have escaped the worst of the credit crunch, partly because of a conservative lending climate here.

“I personally believe Waco will come out in a lot less pain than the rest of the country,” said Brandon Blagg, owner of The Bear Mountain outdoor gear store, 4904 W. Waco Drive. “Our town, conversely, doesn’t see some of the highs you see in other places.”

Blagg, a 2000 Baylor graduate, started his business in 2006 after working as a financial planner in Dallas. He believes his lender, Central National Bank, will continue to extend him lines of credit to help his business grow.

“I feel like we had a good concept and were doing something unique,” said Blagg, who sells camping gear and clothing. “The bank believed in us or they wouldn’t have taken a chance. We may have to be more cognizant of price points, and a little more conservative with the amount of inventory we carry. ... (But) I think people will still want to recreate and have fun, even when the economy is down. No one wants to just sit at home.”

Bill Nesbitt, Central National Bank chairman-CEO, said he thinks Waco small businesses have access to the capital they need to succeed. He said local banks, which rely largely on deposits, are somewhat insulated from the larger credit market.

“I don’t think Waco businesses are seeing any inability to get credit,” he said. “I don’t think it has affected Waco banks. This is a problem that is deep and narrow.

“It is a crisis,” Nesbitt cautioned. “There could be some indirect shock waves, and some pretty good waves, if this continues. It’s probably more difficult to sell a car loan, particularly a used car. Undoubtedly, the home construction industry is flat on its back, even here. This is not a good time to be out looking for a speculative loan, or to be someone wanting to start a business with no capital.

“But Main Street Waco, the backbone of businesses that are providing jobs, are doing OK. Undoubtedly, we will be affected sooner or later.”

Baylor University business professor Bill Petty, who teaches classes on entrepreneurship, said small businesses have yet to feel the full brunt of the credit crisis.

“It will have an impact — it’s just a matter of time before there’s a trickle-down effect,” he said.

Even back in July, the Federal Reserve found that 65 percent of domestic banks had tightened lending standards, and 70 percent were charging more for loans.

That affects small businesses that rely on lines of credit, credit cards and other short-term borrowing for working capital. It doubly affects businesses that provide financing for their product, such as furniture stores and car dealers.

Peter Kultgen at Bird-Kultgen Ford said sales at his dealership have been sagging for much of this year. To be exact, new-vehicle sales are down 28 percent through September of 2008 compared to the same period for 2007. He blames the demise in part on tighter credit.

“I see this on a daily basis: a person comes in to buy a vehicle. His circumstances have not changed one iota, but his credit score is lower,” Kultgen said. “It’s just tougher to qualify for a loan these days.”

As of Sept. 20, about 64 percent of auto-loan applications were getting approved, down from 83 percent during the same period last year, according to CNW Marketing Research in Bandon, Ore.

When they do get a loan, car shoppers are likely to get less cash from lenders, requiring them to put more money down to borrow — sometimes 10 percent to 20 percent of a car’s value.

The average down payment on a roughly five-year auto loan in August was $3,067, up from $2,435 a year earlier, according to Edmunds.com, an auto research firm.

Kultgen said that until recently, if someone came to the dealership owing $15,000 on a vehicle that had declined in value to $10,000, the balance could be rolled into the price of a new vehicle and financed.

“Lenders aren’t going to do that anymore,” Kultgen said.

Meanwhile, the current credit climate makes it hard to start a restaurant, said Sammy Citrano, owner of George’s Restaurant and a spokesman for the Waco Restaurant Association.

“Restaurants are some of the hardest businesses to finance in the first place,” he said. “Several people who are trying to buy other restaurants are telling me it’s more difficult to get loans. People who have lines of credit have seen their limits come down some. That’s mostly in other cities, though. Waco seems to be in good shape with local banks. Actually, business is pretty good.”

Davin Hightower, co-owner of the Green Room Grille on Austin Avenue, got a loan from a local bank this summer to open a new seafood restaurant next door. He said the bankers looked at the success of the Green Room, which he opened with his own money.

“I would reiterate what local banks say,” Hightower said. “They have a conservative approach to business. I work with local banks because they understand what the heart and soul of Waco is. These are people I can call and talk to.”

Hightower’s father, the owner of a small factory, sees it the same way.

Floyd Hightower and his wife, Pat, own The Outdoor Connection, 7901 Panther Way. Their 45 employees make gun slings and other hunting accessories that are sold at Wal-Mart, Cabela’s and stores worldwide. Floyd Hightower said he relies on a bank line of credit to get him through the early part of the year, when the factory is making products that will be sold for the fall hunting season.

“I do business with a locally owned bank that’s very knowledgeable of my business,” he said. “They’re very supportive, or I wouldn’t have been here for 25 years.”

He says it’s too soon to know whether his rates will go up next spring, but he’s confident his banker will want to keep the company alive and growing.

“The economy has me concerned, but I’m a survivor,” he said. “We’ll be here when the firestorm goes away. I think it’s going to take about two years. I think all will be well for our company, because of our past history. Our local bank brings us cookies. As long as they’re doing that, I know things are all right.”

A Tribune-Herald survey last week of a diverse group of small businesses found that many were finding a tough business climate. Most businesses said they either had adequate access to credit or had no need of it. Here are some:

What About Cupcakes, at 108 N. 25th

Co-owner Laura Hill opened the cupcake bakery this June without going into debt.

“Because we’re a small business, my husband and I saved money before we opened,” she said. “We haven’t actually had to ask for credit or a small business loan. We’ve been trying to build off what we’ve made. We knew that with the economy the way it is, we would have had a hard time trying to get a loan.

“Things are so expensive now. It costs me more to make shortening, with the price of powdered sugar, whipping cream, butter and vanilla these days. ... We ended up spending twice what we thought to get started. But we’ve done really well.”

Marilyn’s Gift Gallery, 818 Elm Street

Owner Marilyn Banks avoids the credit squeeze by avoiding debt. But she’s still feeling the effect of the recession.

“Sales are pretty down, but that didn’t just start,” she said. “People are still coming in. They’re just not buying the big ticket items.”

Harley-Davidson of Waco, 4201 S. IH35

The dealership offers financing for motorcycles through Harley-Davidson’s lending agency. Loan rates have gone up about a point from a year ago, to about 8.5 percent. The dealership’s rate of loan turn-downs and defaults hasn’t increased, but overall business has been slow, says Greg Arceneaux, general manager.

“Sales are down over the last month, but up over last year,” he said. “We’ve seen the trickle-down from the economy. We’re experiencing the same impact of other retailers. Customers’ discretionary income is down. But on the other hand they’re looking for a more economical means of transportation, and the cost of owning a motorcycle is a lot less than a car. The increase in gas prices has tipped the scale.”

Crozier’s Flowers, 2901 W. Waco Drive

“It’s been a slow year,” says Kyle Cox, owner since 2001. “People are spending money on things they absolutely have to have, and I’m not spending money unnecessarily, either,”

Cox secured financing for the building, goodwill and inventory from Wachovia, a company that has been targeted for buyout by Citigroup and Wells Fargo. Cox said he sends financial information to Wachovia, and the company has been understanding, even offering him a couple of months’ deferment on payments as he gets through tough times.

“They are saying, ‘We know what your struggles are. Can we help you?’” Cox said. “They are coming to me with options, which is something the public probably doesn’t hear much about these days.”

Mattress Sleep Center, 636 North Valley Mills Drive

“People are scared to spend their money,” says store owner Billy Weaver, who estimates business is down 30 percent this year.

Despite the nationwide credit crunch, Weaver is trying to stir up business by offering no-interest financing for 24 months instead of 12.

Weaver and his wife, Carol, also own Mattress Sleep Center locations in West Texas, where oil money has propped up the economy.

“But Central Texas is dead,” says Weaver, who also owns locations in Killeen and Copperas Cove. He believes the deployment of Fort Hood troops to Iraq has caused stores in those cities to suffer.

Standard Hat Works, 1826 Circle Road

Owner Lenny Lawson says his credit remains solid, but business is slow.

“People are not spending as much as they were this time last year. The economy definitely has changed things,” Lawson said.

Lawson said many of his customers are “country folks,” and they’re facing the crunch of buying high-priced diesel for their pickups and farm equipment and petroleum products such as fertilizer.

DuBois Furniture, 3920 Bosque Blvd.

Owner James DuBois said financing for his business is provided by Texas First State Bank, where he is a director.

Meanwhile, customers wanting to finance purchases can fill out the paperwork at DuBois, and Texas First State Bank or Wells Fargo will consider the applications, DuBois said.

As for whether credit is getting tighter at the upscale store, DuBois said: “We’re not getting people turned down due to the clientele, but the lenders are asking more questions than they used to.”

Blackhawk Modifications, 7601 Karl May Drive

“Our company is well capitalized, and there has been no slowdown in our business to speak of,” said Jim Allmon, president and CEO of the aviation company, which sells Pratt & Whitney turboprop engines.

“Our banks are Chase and Compass, and both have offered to increase our credit lines if we need it,” Allmon said, “so from our little microcosm of the world, it’s a nice day.”

Allmon said the engines sell for $630,000 to nearly $1 million a pair, “and we sell three or four sets of engines per month.”

Central Texas Iron Works, 1000 Winchell Drive

The manufacturer “has no debt, so credit is not an issue with us,” spokesman Curtis Cleveland says. The 220 employees’ jobs are secure.

“None of our business base is impacted by what’s going on in Wall Street,” Cleveland said. “We have a 12-month backlog of work.”

CTIW is providing more than $75 million in steel for a project in Wood River, Ill., that involves expansion of a ConocoPhillips facility.

Alcoa Fastening Systems, 8001 Imperial Drive

The company employs 460 people in Waco who make fasteners for trucks, trailers and railroad cars.

“Our credit line comes through Alcoa, which is a huge multinational company,” plant manager Bart Preston said.

Any squeeze in credit would impact the company’s smaller suppliers, Preston said, adding: “We’ve not noticed anything yet.”

Preston said business at the plant is “not great, not bad, kind of in that middle ground right now.”

Waco Restaurant Supply, 308 Lake Air Drive

Owner Shaleen Tillman said Extraco provides the credit she needs to keep operating. The Waco-based banking company has not tightened her credit line, she said, “but I’m having to produce a little more paperwork.”

Tillman said she does business with manufacturing plants all over the United States, “and I’m still getting discounts if I pay promptly.”

In these trying economic times, Tillman said, she’s beginning to accept more alternative forms of payment from customers. She may offer to lease equipment instead of selling it, and she’s accepting credit cards.

A-1 Fire & Safety Equipment Co., 1618 Exchange Parkway

Owner Andy Restivo says he’s had a line of credit with a local bank for years.

“I don’t use it, but it’s there if I need it,” Restivo said. “Knock on wood, with business the way it is right now, I’m not affected by the economic crunch as far as needing credit.”

Waco real estate agent Towne Adams:

“Absolutely, it is slower right now,” Adams said. “Buyers are expecting to get a good, lower-than-normal purchase price. It’s a great time to buy houses, but it’s not a great time to sell houses.”

Adams said sales are slow, in part, because of tighter financing requirements.

Real estate agent Celina Fuller

Fuller says the past three months have been among the best this year for her.

“We do have a lot of inventory out there, but we also have buyers,” Fuller said, adding: “Some people who were high-risk buyers in the past are having a little harder time getting financing, but those with good credit scores who pay their bills aren’t having a problem.”

Fuller said more buyers are “putting their negotiating hat on” and dickering over features and prices they crave.

The Dwyer Group, 1020 University-Parks Drive

Nationally, some franchise companies are offering two-for-one deals, reduced fees and financing to help attract new buyers. Not so with Waco’s Dwyer Group, says executive vice president Robert Tunmire.

With concepts like Mr. Rooter, Mr. Electric and Glass Doctor, the franchising empire offers what Tunmire describes as “needed services” provided by electricians, plumbers and glass repair specialists. That sets the company apart from franchises that tap into customers’ discretionary income and may suffer during lean economic times, he said.

The company attracts franchisees already in the construction trades who want the security and exposure a franchise can offer.