Trade Wins!
Businesses gain goods and services by bartering through exchanges.

By Tracy Turner
 

COLUMBUS, OHIO — Business is down at Advance Graphics in Grandview Heights, but owner Frank Hoster hasn't laid off any of his 13 employees. Instead, Hoster has bartered with companies that are willing to accept his printing services in place of cash. By bartering, his company saved more than $2,000 a month in courier service fees. At the same time, his otherwise idle employees were kept busy filling orders that were bartered out to other companies.

Hoster now trades his quick-printing service for his other business needs such as office cleaning, electrical services and emergency plumbing service. Most important, bartering allows the 20-year business owner to hold on to cash, a precious commodity these days. "It seemed like a smart thing to do. Now I'm able to use these barter dollars to buy services I'd usually have to pay cash for," Hoster said. "It's not a cure-all, but it's a nice option to have."

Hoster belongs to International Monetary Systems (IMS), a Wisconsin-based barter exchange company. He pays a membership fee, which ranges from $195 to $595 per year. This allows him to barter his services in exchange for services and products from other companies in the exchange. IMS has 2,051 member companies in central and southeastern Ohio.

More businesses are turning to bartering exchanges as the credit crisis has caused many traditional sources of business financing to dry up. In fact, 75 percent of banks polled in the October Federal Reserve loan officer survey said they've tightened their lending standards for small-business loans within the previous three months. And 90 percent said they were charging more for loans and credit lines. Government-backed loans are also declining.

The Small Business Administration guaranteed 8,996 loans during the first quarter of fiscal 2009, a 57 percent drop from the 20,859 loans that were guaranteed during the same period a year earlier. As a result, bartering exchanges are reporting significant increases in membership, as businesses look to take advantage of the age-old system of trading goods or services to generate credit that can be used for future transactions.

New-member registration increased 45 percent in the second quarter of 2009 compared with the same period last year at ITEX Corporation, a barter exchange company based in Bellevue, Washington, its president and CEO, Steven White, said in a recent statement. Likewise, new business inquiries have increased 50 percent this year at IMS, spokeswoman Krista Vardabash said.

Vardabash attributes the inquiries to companies searching for new sources of credit, many of which may have been turned away by lenders reacting to a troubled economy.

In its latest credit-line review in March, IMS issued $2.9 million in trade credits to its network of 18,000 businesses, adding to an existing $55 million in established credit lines, she said.

About 400,000 companies nationwide do business-to-business bartering, generating $4 billion in transactions annually, said the International Reciprocal Trade Association.

 Some business owners are seeing the benefit in trading their goods or services instead of dealing in cash, said Joan Coughlin, spokeswoman for the Central Ohio Better Business Bureau. She said the BBB supports business-to-business bartering as long as businesses understand how they can benefit. The BBB advises companies to read the fine print in barter-exchange membership agreements and understand the conditions before joining.

"Going back to the basics with bartering can help a business owner cut down on personal and business operating costs in a tight economy," Coughlin said. "Whether you're trading services or goods, bartering can help out your bottom line and even help generate new customers." The barter companies IMS and ITEX are both rated "A" by the BBB, according to the organization's records.

Tonia East, who owns Eddie's Glass & Mirror Service, is part of the IMS barter network. She used her credit for a security system for her store, installed after a nearby business was robbed. The company has also bartered its flat glass to buy office supplies and uniforms.

The economy has caused more companies to turn to barter as a viable option to run their business, said Barbara Martin, who runs the IMS Columbus office. Bartering allows a company to still bring in revenue in the form of barter credit or trade dollars that can be used to fund business operations without having to spend cash, she said. "This recession has caused people to be more open to thinking outside the box," Martin said. "Some are thinking, Hey, maybe that barter idea isn't such a bad idea."

Another advantage is that businesses can use the barter exchange to find new customers and utilize excess capacity, said Jay Anand, a professor of corporate strategy at Ohio State University's Fisher College of Business. "If you have employees who are at work but have no work to do, you are, in essence, paying them not to work," Anand explained. "Generating new business through a barter exchange puts the employees to work, ultimately saving the business money."

Garth Walker, who co-owns Little Turtle Golf Club on the Northeast Side, used barter credit to redo the company's tennis courts and to make capital improvements to the club, such as carpet cleaning and asphalt repair. The club also used barter credit to purchase a line of golf shirts and hats that have become popular items at the club, he said. "Not having to spend money in this kind of economy is a good thing," Walker said. "It allows us to hold on to cash reserves while still making improvements to our club. It's something to take a look at because it's a smart way to stretch the budget in an otherwise tight economy."

       
Garth Walker, co-owner of Little Turtle Golf Club, used a bartering system to obtain
shirts and hats to sell at the club, and to make capital improvements in the club.