Small businesses feel the squeeze

Amid economic downturn, longtime Md. companies have been forced into bankruptcy

By Tricia Bishop

November 17, 2008

Mimi Gioni and her family filed for Chapter 11 protection in August for the Italian Inn in Hyattsville, hoping to restructure the business and keep their restaurant open in the face of the sagging economy. (Baltimore Sun photo by Karl Merton Ferron / November 14, 2008)

For 15 years, Colleen Parker ran Dance Explosion in Glen Burnie with a team of professionals, including the occasional Russian ballet master, teaching everything from ballroom to hip-hop. Her students have earned more than 2,000 trophies and some of them fame: There's a Radio City Rockette and a Broadway performer.

Parker was devoted to the business, her mother said, after answering her daughter's home phone. The word proud appears a half-dozen times on the studio's Web site in a section describing its achievements.

What doesn't appear is any mention that the company is effectively gone, a victim of the economy. Students left en masse as families cut discretionary costs. Parker filed for bankruptcy in August, listing $1,200 in resources and more than $35,000 in liabilities. Dance Explosion's assets were disbursed and the case closed last month. Parker said she wants to start again, but she didn't want to talk about much else. Not many in her situation do.

While the rough economic times have meant painful adjustments for most people, they've crushed some small businesses, even those with long local histories, along with their owners' livelihoods.

"I have people calling me who've been in business for 10 years, in business for 15 years, saying they've been fine for 10 years and fine for 15 years: 'I've made a good living for myself and my family,' [they say] 'but in this economy, I just can't do it,'" said Ann Shaw, a Salisbury bankruptcy attorney.

Over the past few months, about 60 Maryland businesses have filed for bankruptcy. Not all blame the economy; some have tax troubles, or they're facing expensive lawsuits. But for many, the downturn was a contributing factor. That is worrying to analysts who say that small businesses, which account for half of the nation's gross domestic product, are its strongest economic driver.

Small businesses often weather economic slumps fairly well. Their size allows them to be more nimble and react quickly to adversity, and they're less likely to resort to layoffs: Their employees are more like family. But things are different this time, particularly in Maryland, said Ellen Valentino, state director of the National Federation of Independent Businesses.

"In addition to just a lag in spending in the economy here, we had the rise in fuel costs at the same time, had utility bills increase at the same time, had the minimum wage increase at the same time, the tax increase, so it became a perfect storm," she said.

And this year's holiday sales boost is likely to be slim. The consumer confidence index, which predicts spending levels, slid to an all-time low of 38 last month, compared with 61.4 in September. The figure was well below analyst predictions and nowhere near last year's October confidence index of 95.2.

"It's difficult," said Valentino, who nonetheless holds out faith that small businesses eventually will help spur spending.

Still, construction companies, clothing retailers, travel agents, marinas and other small firms are struggling. It's a long list.

"When people are losing their homes, they're not buying homes, they're not going on trips, they're not putting in new decks, not putting in carpet," Shaw said. "It's like dropping a rock into a pond and watching the ripples."

Because the Ocean City condo market dried up, a decorator who had been in business for 12 years went bankrupt, Shaw said.

Lack of demand contributed to the end of Kathleen Kubicki's Searise Inc. as well. Her Eastern Shore wicker furniture business was launched by a different owner in 2000. Kubicki took over in 2006, according to bankruptcy records. A string of bad luck - an eviction, the loss of a small-business loan - sent the company spiraling, and the economy finished it. She tried to convert it into an Internet operation but couldn't make a go of it, in part because of "the contracting nature of the economy," according to a court filing.

That led her to hire Shaw and later to "reluctantly" switch from a Chapter 11 bankruptcy filing, which would have allowed the business to reorganize, to a Chapter 7 filing, shutting it down. Shaw said she would pass along an interview request, but the message was never returned.

Some, such as John W. Hall Jr., owner of Jack Hall Inc., a College Park construction business, are sick of the subject.

"We don't need any more publicity about it," Hall said. He filed for Chapter 11 reorganization in September.

Creditors do not want to talk much either. Dance Explosion owed a Glen Burnie real estate management company $23,000, but no one there was willing to be interviewed. Joel L. Perrell Jr., a Baltimore bankruptcy lawyer, said creditors typically recover 10 percent to 15 percent of what they are owed.

Most people don't want to talk about bankruptcy, attorneys said. It's embarrassing, upsetting and often the hardest decision of a person's life. It usually comes after a long struggle, and it's often the end of a dream.

Though many set out with a plan to reorganize, it is more likely that they won't be able to, Perrell said. They cannot come up with a sufficient plan to pay their creditors, and many simply can't afford Chapter 11. It's a long, expensive process.

Christos Gioni is giving it a shot. He filed for Chapter 11 protection in August for the Italian Inn, his family's Hyattsville restaurant, hoping to find a way to pay his restaurant's debts and 30 employees and to restructure the business, which has seen revenue drop about 20 percent this year.

"It's not cheap at all, but in order for us to stay open and function and be here for the clients and guests, we took this opportunity," Gioni said.

The Italian Inn has roots going back to 1961 under a different owner. But for the past two decades it has been run by the Gioni family, with his mother, Mimi Gioni, pitching in to cook pizzas and occasionally wash dishes to help establish the restaurant as a favorite spot for local residents. Some of the people they're used to serving have slipped away, however.

"People are not coming out as frequently as they used to," Gioni said. "We're having to give discounts and coupons just to get people to come out a bit more often, and people are just not spending as much as they were before."

And then there's the problem of the building. It's older and needs work, but the credit crisis has made it difficult for the Gionis to get small-business capital improvement loans. Still, they had to do the work.

Gioni looks at the Chapter 11 process as a chance to pull the restaurant out of a rut. He's still waiting for court approval.

"We're almost 50, and we want to stay here another 50 years," he said. "We're all battening down the hatches to ride out this storm."