ST. PAUL, Minn. — When Chuck Bidwell and Jennifer Guarino took over J.W. Hulme Co. a few years ago, their plan was to transform the tiny maker of duck-hunting gear and fishing-rod bags into a luxury luggage company.
They applied the modern American business playbook: Borrow heavily to grow fast. The strategy worked — until the credit crisis threw out those rules.
Now the two business partners are struggling to pull their company, and their lives, out of a spiral. The pain is rippling through a broad circle of investors, employees, suppliers and family members.
Mr. Bidwell, a 63-year-old serial entrepreneur and collector of vintage Buicks, is selling his beloved cars, is about to lose his house and is getting divorced from his wife of less than two years, partly due to their financial nightmare. Ms. Guarino has drained her savings, had her credit cards shut off, and is fielding phone calls “weekly,” she says, from a frustrated relative who loaned her money.
Watch a four-part video series on how the credit crunch has affected two small business owners and those around them.
Ms. Guarino, 46, says her dream was to build a business “that was not just a job, but was a passion.” Instead, she and Mr. Bidwell have had to lay off employees, stop paying investors, and renegotiate bills with their suppliers. Still, there’s no guarantee the 104-year-old business will survive.
At small companies nationwide, a similar cycle is playing out. This is bad news for the U.S. economy: In recent years, small employers — the typical one has a staff roughly Hulme’s size — accounted for most U.S. new-job creation, according to the Small Business Administration. Small companies of 500 or fewer people employ more than half of the country’s private-sector workers.
Many relied too heavily on lending, whether from banks or credit cards, says Bill Dunkelberg, chief economist at the National Federation of Independent Business. “That’s why bankruptcies are up,” he says.
In fact, business bankruptcies rose 49% to 38,651 in the fiscal year ended Sept. 30 from a year earlier.
Mr. Bidwell and Ms. Guarino’s aggressive borrowing was “pretty typical of small businesses,” says their main lender, Fizal Kassim of Maple Bank in Champlin, Minn. He loaned Hulme more than $550,000 over five years.
The two owners have eclectic résumés: Mr. Bidwell has worked at Target Corp., Tonka Toys Inc. and a cigarette distributor. He once started an air-filtration company, and about a decade ago helped launch a local “currency” in Minneapolis, the HeroCard, designed to let people earn credits for volunteer work that could be spent like regular money.
As for Ms. Guarino, she was a handbag designer in California before more recently running regional magazines including Minnesota Parent.
She also worked with Mr. Bidwell at CHC Data Inc., maker of the HeroCard. That’s when the two made a pact: If they ever spotted a business they both liked, they would consider buying it.