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NEW
YORK — Caught
in the credit crunch of 2008 that's threatening their livelihoods,
small-business owners are turning in droves to an age-old source of commerce:
the exchange of goods and services, or commercial trade (barter), to hold on to their precious
cash.
New
money is not flowing to Main Street. Since October 2007, there has been a
decline of almost 30 percent in loans approved for small businesses, the Small
Business Administration reported. Companies short on cash are often forced to
let workers go, and in October alone companies with 50 or fewer workers
eliminated 25,000 jobs, according to the ADP Small Business Report.
“During recent history, we have seen these businesses adding jobs while
larger-size businesses shed them,” said Joel Prakken, chairman of
Macroeconomic Advisers, which prepares the report. This is the first decline
in small-business employment reported by ADP since November 2002, he said, and
the largest percentage decline since the economy was emerging from recession
in the early months of 2002.
In
response, trade exchanges are working hard to sign up participants. The
exchanges range from publicly traded entities like International Monetary
Systems (IMS) and ITEX Corporation to smaller operations like U-Exchange. Many are
reporting double-digit increases in membership, as well as a bump in
transactions. At ITEX, for example, registrations jumped 36 percent in
October, said Steven White, the chairman and chief executive. The exchange,
founded in 1982, has more than 24,000 member businesses.
Trading
(or "bartering") has grown with the times and is now much more than “I’ll take yours,
if you take mine.” Often, these days, multiple parties meet through trade
exchanges and amass credit that can be used for future transactions (more like
“you take mine and I’ll take someone else’s later”). Drawing on the reach of
the Internet, many exchanges include participants from around the world.
What
makes commercial trade so appealing during an economic crisis? Trade
specialists point to three attributes. First, a member business can find new
customers and use excess capacity. Second, a satisfied trading partner often refers cash-paying
customers to the small business. And third, the participants can conserve
hard-to-come-by cash.
Ken
and Angela Lineberger, owners of the Wine Tailor winery and retail store in
Rancho Cucamonga, California, said sales would be flat this year had they not been
active in the ITEX trade exchange. Thanks to trading, overall sales are up 8
percent, Mr. Lineberger said. These are customers who wouldn’t normally seek
out their wine, Mr. Lineberger said. “We just had a couple drive over 100
miles to buy six cases of our wine because they’re ITEX members,” he said.
ITEX customers pay the full retail price, he added; they are not discount
buyers.
Ken Lineberger, Owner of the Wine Tailor winery
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The
Linebergers use ITEX dollars they accumulate in sales to pay for pest control,
electrical work, accounting and legal services. “It’s nice to move those over
to ITEX,” he said, because it frees-up our cash. They also use it for
vacations and other personal transactions.
Commercial trade is estimated to generate more than $3 billion through
exchanges in the United States, said Robert B. Meyer, who edits Barter News, a
trade publication. That does not include corporations that trade directly with
each other, he said.
Official tallies are hard to come by, he said, because there are more than 250
exchanges and the systems are decentralized. Hundreds of exchanges are
available online, some national and some regional.
Chris
Keogh, who runs his own construction firm, Jade Stone Construction, in Pearl
River, New York, just completed his first trade transaction through International
Monetary Systems. “The construction business has always been feast or
famine,” said Mr. Keogh, 47, a native of Dublin who has been in the New York
region for 22 years. During a recent bad stretch, Mr. Keogh was scrambling to
drum up new customers through advertising on Craigslist and even roadside
signs. I.M.S. Barter saw the Craigslist post and contacted him. Mr. Keogh
decided to give it a try, agreeing to paint a house for $5,000 — $1,000 in
cash and $4,000 in I.M.S. trade dollars. Mr. Dalsimer subsequently referred
Mr. Keogh to two new customers. One of them will provide Mr. Keogh’s next
project, painting a two-bedroom apartment in Somers, New York, in another
part-cash, part-trade arrangement.
“You
have to be careful how much you trade,” he said, because you don’t want your
business to become dominated by trading. And each side of a transaction
carries that 7 % fee. Experts recommend that a business use trade for
no more than 5 to 15 percent of sales to avoid crowding out cash business.
Many
trade exchanges offer trade credit to members who have been turned away by
lenders in the cash economy; in its recent credit-line review in October,
International Monetary Systems issued $2.7 million in trade credit to its
network of 18,000 businesses, adding to an existing $55 million in established
credit lines, said Krista Vardabash, its director of marketing. “We base our
credit on the products and services that the member businesses have to offer,
not on their cash accounts or how they look on paper,” said Donald Mardak, the
chief executive.
To be
sure, trading is not mainstream, said John C. Moore, a founder of U-Exchange.
Still, traffic at the site, which is run by Mr. Moore and his co-founder, Barb
Di Renzo, has spiked 70 percent this fall, he said, with an influx of
participants from Spain, South Africa, Britain and the United States. One new
member at U-Exchange is R House Construction, owned by Rich Rowley of Tacoma,
Washington. In a recent post on U-Exchange, he offered new home construction,
remodelling, home repairs, real estate work orders, home maintenance and
commercial improvements. In exchange, Mr. Rowley is looking for vacations,
real estate, homes, land, dining, medical care, dental care, a boat, a motor
home, groceries, gas, entertainment, a ski pass and tickets to Mariners
baseball games or Seahawks football games. So far he has had no takers, but he
said he remained optimistic. “We have to learn to adapt to the changing
landscape,” Mr. Rowley said. “Part of that is trading. The exciting thing is
this is another part of the puzzle that gets us to where we’re going.” His
wife, Kathy, came up with the idea of trading as their business
dropped off, said Mr. Rowley, who usually builds two houses a year and sells
them. This year, he sold only one house; the other remains empty. Even if the
U-Exchange post does not work out, Mr. Rowley said, he has arranged privately
to do renovation work on a vacation home in Ocean Shores, west of Seattle,
while he and his wife stay in another beach home. “We really like to travel,”
he said. “We don’t want to be denied that just because the economy is going
south.” |
