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Composites Industry Reacts to Capital Needs

December 7, 2009 by · Leave a Comment 

Monty Felix, CEO of Alaglass Pools in St. Matthews, S.C., says the current economic recession has hit the composites industry hard.

“We’re seeing as much as 12% unemployment as small businesses, unable to secure loans, are forced to cut back,” said Felix, who is also the president of the American Composites Manufacturers Association (ACMA). “Small businesses are strapped for capital.”

Felix estimates about 85% of ACMA members are small business owners who have been devastated by the economy primarily due to the inability to secure governmental loans, according to the Orangeburg (S.C.) Times Democrat.

Alaglass Pools is one such business.

Felix says revenues at his business, where he makes pools costing from $20,000 to $35,000, has dropped by half over the past two years. He has laid off about 45 of his 70 employees.

“Most are in survival mode,” he said.

On top of this, the economic downturn has prompted banks to restrict loans further cutting off any access to credit for small businesses.

In light of these challenges, Felix, as president of the ACMA, paid a recent visit to Washington and met with U.S. Commerce Secretary Gary Locke and U.S. Small Business Administrator Karen Mills. Felix joined a group of association leaders invited to discuss economic development concerns of small businesses.

“These are unusual times,” Felix said.

The ACMA represents a $42 billion industry, 3,000 makers of composites and a total of more than 250,000 employees.

Composites are used in recreational vehicles, skis, boats, cars, jets and protective armor for soldiers and their vehicles.

Composites are used as wood replacement for decking and pilings, as well as for material to build bridges.

Felix said the visit to the nation’s capital was to see if the SBA would assume about $20 billion in loan guarantees for small businesses so they can stay open.

“This is not a handout, but a hand-up,” Felix said, noting the small business will have to repay the loans.

In a proposal endorsed by other members of the Trade Association Liaison Council, Felix discussed the importance of modifying the SBA 7(a) loan program to include emergency lending to companies negatively impacted by the recession.

The American Recovery and Reinvestment Act (federal stimulus) has allowed the SBA to increase its loan guarantees from 75% to 90%. This means if a business cannot make its payments, the government will pick up the tab and pay back 90% of the loan to the bank.

Other proposals of President Obama, which in part were prompted by the Washington visit, were the reduction of SBA borrowing fees from 3%to 0% and increasing the maximum loan size availability from $2.5 million to $5 million.

“The plan announced would allow eligible community banks and other financial institutions to receive new capital at a lower dividend rate, enabling them to increase their lending to and support of local businesses,” Felix said. “This means a lot to the composites industry where the majority of manufacturers are small businesses that have been hard hit during the current economic recession.”

“By increasing the size of SBA microloans, the president’s plan would encourage the development of many innovative new composites businesses,” Felix said.

The 7(a) loans are the most basic and most used type loan of SBA’s business loan programs.

But Felix said more could be done such as reexamining financial analyst techniques. Currently, Felix said a company’s two-year financials are examined, which virtually disqualifies any small business from receiving a loan.

“We recommend maybe looking at the recent six months activity and comparing the same period of the year to see if it is trending up or down,” Felix said, noting there needs to be a balanced vehicle in place that better provides loan access. “It needs to be a loan but it needs to be an attractive loan.”

Felix said a structure could be put in place saying that a business could borrow about $100,000 with a 15-year low-interest-rate amortization. He said such a structure would not require payments in the first 18 months.

“We have to recognize that we are in this great recession and that they (small businesses) don’t have to pay back debt immediately,” Felix said.

But despite the recent struggles of small business, Felix says he sees a glimmer of light amid the darkness.

“As business picks up in the spring, we will rehire,” Felix said. “Things are starting to turn around. We are upbeat about this coming spring.”

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