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Gathering Gloom

Small businesses looking for cash today are likely to have a hard time -- one that could last through 2002. And those companies least likely to find a sympathetic lender are startups or new ventures in technology, retail, and health care, according to a quarterly study of 80 lenders nationwide.

Eighty-three percent of those participating in the latest Phoenix Lending Climate in America Survey, conducted in early October, expect a recession after the September 11 attacks. About half of the lenders say the economy will begin to improve during the second half of 2002, but a quarter of respondents don't expect a recovery until the first half of 2003 or later.

"Lenders were already skittish following the steep economic decline of the past year," says E. Talbot Briddell, president of Phoenix Management Services. "Prior to Sept. 11, a majority of lenders expected the economy to show improvement during the first half of 2002. That optimism was severely undermined last month." Ninety percent of lenders expect further fund rate cuts by the U.S. Federal Reserve.

TOUGHER CONDITIONS. Most likely to be hit hardest are international borrowers and small and midsize businesses. Fifty-three percent of lenders say they would be less likely to lend to international borrowers, while 42% say they would be less likely to lend to middle-market companies and small businesses. Says Briddell: "The more unsettled the economy is, the more conservative lenders will become toward markets they perceive as being less stable."

Lenders reported plans to tighten loan structures -- collateral requirements, guarantees, advance rates, and loan covenants -- on all but the smallest loans, those under $1 million. But what sounds like good news for smaller companies probably means that those loans have already been tightened up. By Robin J. Phillips in New York

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