When it comes to job growth in Colorado, no one does it like small business.
Companies with fewer than 500 employees created 86 percent of the state’s new private-sector jobs from 2003 to 2006, according to the U.S. Small Business Administration. The smallest companies — those with fewer than five workers — made more than half of those hires.
The loss of company headquarters in Colorado, including Frontier Airlines and First Data, and the pending loss of Qwest’s headquarters, only heightens the critical role that small businesses play in the state’s economy.
But as politicians and legions of jobless Coloradans look to them to help spark an economic recovery, many of the state’s small-business owners remain cautious and uncertain about the future.
“We’re down fairly dramatically, a good strong 30 percent over 2008,” said Bob Brown, president of Harsh International, an Eaton maker of truck hydraulics and agricultural products with about 80 employees. “A little bit has come back this year but not that much. There are little, tiny glimmers of hope out there.”
After 18 months of falling orders, layoffs, store closings and belt-tightening, many of Colorado’s 127,000 small businesses are battered and bruised, though a bit leaner and stronger too.
Optimism and frustration
While there are exceptions, many aren’t yet seeing a strong enough uptick in demand to justify expansion or rehiring and aren’t planning to do so until later this year, at the earliest. Some are having trouble getting bank loans — despite federal stimulus funding intended to ease credit — and others that sell internationally are getting hit by a rising dollar and weakness in the European economy.
“If there’s a recovery, we haven’t really experienced a lot of it yet,” said Annette Quintana, chief executive of Istonish, a Greenwood Village-based technology services company that employs about 100. “We’re optimistic that three, six, nine months out will look different for us, but it has been really pretty slow with a lot of our customers.”
Istonish laid off about 8 percent of its workers in April.
With demand from its corporate clients weak and revenues flat, Istonish began a push last year into health care technology. It plans to help doctors and hospitals in rural areas use digital patient records. At least $17 billion in federal stimulus money was set aside for health information technology, but much of it still isn’t flowing, Quintana said.
Istonish got a $330,000 loan from its bank earlier this year to invest in new equipment, which Quintana attributes in part to a long business relationship with her banker.
Istonish’s banker, Colorado State Bank and Trust senior vice president Kevin Shaw, said his bank wants to make more small-business loans, but demand from qualified borrowers is low.
“It’s not that we’re seeing a lot of deals and turning them down; we’re not seeing the volumes we were seeing two years ago,” he said.
“Typically, banks see requests for financing because a company is growing, acquiring, replacing or adding equipment,” Shaw said. “Right now, people are hoping for growth and anticipating it, but until it’s actually pretty firm, they’re being cautious.”
Still, Colorado State Bank and other lenders tightened their standards after the financial crisis, spawned in large part by easy money and loans gone bad.
A report by the Congressional Oversight Panel earlier this month found that big banks in particular have pulled back on small-business lending. The report found that the value of large banks’ loans to small businesses fell 9 percent from 2008 to 2009, compared with 4.1 percent for overall lending.
Small banks have picked up some of the slack but are strained by their exposure to soured commercial real estate loans. The report noted that falling demand is just part of the problem and that lack of access is putting some small companies out of business.
Denver-area businessman Alan Weldon said he has been trying to get a bank loan for three months to buy two local ice-cream franchises. The 49-year-old husband and father of three took a buyout in October from Kellogg’s, where he was a regional sales manager, and decided to go into business for himself.
Weldon found an owner who wanted to sell two struggling franchises. He has a business plan to turn the operations around, but so far, the banks are unwilling to take the risk, he said. He started looking for a $250,000 loan but has cut that to $150,000. He’s prepared to put several hundred thousand dollars of his own retirement savings into the business.
“It’s been frustrating to get the banks to look beyond just what the numbers are today,” he said. “I feel like I have a really good story to tell, but . . . they want it in black-and- white, year-over-year growth. Why would someone sell a business that’s on fire like that?”
Weldon has talked to about 10 banks, one of which remains interested, he said.
Europe’s turmoil bodes ill
For Eaton-based Harsh International, it took the backing of the Brown family to get the 62-year-old company through the recession, Brown said. Harsh typically relies on global markets for a third of its sales, but that number is about 20 percent now. This recession was more global in scale than earlier ones, he said, and now a surging dollar and turmoil in Europe are casting doubts over the future.
Harsh didn’t lay off any workers, who have often kept busy on lower-priority tasks like painting the plant.
Harsh officials looked at every aspect of the business, from energy use to manufacturing processes, to improve efficiency and trim costs. Now, they’re waiting for a sustained lift in customer orders.
“We’re busy now, doing OK, but once May is over, I don’t know what we’ll do. But then in June, it will probably fill up. There’s no long-term pipeline of work out there,” Brown said.
The story is eerily similar in Vail, where hotels and restaurants saw a slight recovery in visits during the recent ski season after a double-digit decline.
“We were up 4 percent, which is good. We’re headed in the right direction, but we’re still 15 percent behind the year before,” said Rob LeVine, general manager of the Antlers at Vail, an independent hotel that employs about 40 people. “We had our first layoffs in 30 years, about 10 percent; we froze pay for everybody, and a few people including myself took pay cuts.”
LeVine is considering refilling a maintenance position and has shuffled duties to create a sustainability coordinator to make the operations greener. Some tasks like staining the woodwork have been delayed, for now.
Amid the gloom and doom there are stories of success in Colorado’s small-business economy. Entrepreneurs in technology, biotechnology and green-energy industries continue to attract venture capital. The state’s supply of engineers, lawyers and other well-educated professionals generates a stream of promising start-ups.
Jobs created by these businesses are economically valuable for the state.
“We remained profitable last year and we continued hiring. We’re hiring right now,” said John Tredennick, founder and chief executive of Denver-based Catalyst Repository Systems, which develops computer systems to manage electronic discovery for law firms.
Demand for Catalyst’s services remained strong during the recession as firms outsourced services, he said. Catalyst is hiring software, systems and data engineers, project managers, consultants, administrative staff and salespeople.
“They’re mostly skilled and highly motivated people,” Tredennick said, “and we pay them well.”
Greg Griffin: 303-954-1241 or ggriffin@denverpost.com
