Farewell to the family firm

Muerte y Vida ("Death and Life") street, in Segovia, where Marina Estebaranz opened her real estate agency in 1997, should be called Vida y Muerte ("Life and Death") to do justice to the history of her company. Her small business, C&M Aranguren - the initials of Marina and Cristina, her twin sister, and the surname of Eduardo Aranguren, her partner - had 14 great years, paying juicy dividends, before dying, this past August 1, just one more victim of the financial crisis that has devastated the construction sector.

"When I think about the agency, tears still come to my eyes," says Marina, 41, as she looks at the "For Rent" sign stuck to the window of her former office, a mere 40 square meters in the historic center of Segovia. Although it may not be much of a consolation, Marina's business is one of a great glut that have failed recently due to the earthquake that was first felt in the financial sector, bankrupting all kinds of companies and institutions in its wake. Over two years later, there are nearly five million people out of work in Spain, and the consequent decline in domestic consumption is threatening to hinder its economic recovery, which is already weak.

"When I think about the agency, tears still come to my eyes"

"The Christmas lottery first prize was won in Segovia; house prices soared"

The latest tremors are now being felt by small businesses and the self-employed. In the second quarter of 2011, 1,771 companies have been forced to call a creditor's meeting, 16.5 percent more than in the same period of last year, according to data from the National Statistics Institute. The institute attributes this huge increase precisely to the sharp decline in this type of businesses, many of them run by self-employed workers, of which there are nearly two million in Spain. The figures from the first quarter of the year weren't any more optimistic. The number of insolvencies, according to the same institute, reached a historic high during that period, with 1,803 companies declaring themselves bankrupt.

"These figures reflect the truth: that the situation of self-employed workers and small business is much more difficult this year than in 2010," says Lorenzo Amor, president of the Federation of Self-Employed Workers' Associations, one of the organizations that represents a scattered sector not particularly inclined to associate.

These numbers reflect a huge tear in Spain's entrepreneurial fabric, 90 percent of which consists of small and midsized businesses. Many of them are closely tied to construction, which gave rise to a ton of subsidiaries, from metalwork to plumbing or electricity companies. It also led to a surge in real estate agencies, which popped up like mushrooms in the heat of a booming business at a time when banks were giving away money and the supply of apartments, semi-detached homes and single-family dwellings seemed endless.

"First prize in the Christmas lottery was also won in Segovia in 2000, and the price of flats went up a ton," says Marina Estebaranz. Back during the boom years, she spent as much as 20,000 euros a month on advertising her agency, and hired four people to help her and her sister run the business.

"We didn't make very much money, just 700 euros a month; no kidding," she says. "The truth is, we loved what we did. We dealt with all kinds of people. We've found rental flats for immigrants who had arrived by boat, and we've also sold expensive flats." Back then, it seemed as if the demand could actually match the huge supply. In a city like Segovia, with a population of 55,000, 30 real estate agencies opened to satisfy the buying frenzy.

But then came the lean years and everything changed, as it has for so many other small businesses that seemed destined to grow forever. Debt, non-payments and the decline in demand make up the deadly cocktail that has poisoned many of these companies. And often when one company goes under, it drags another one down with it.

The closure of Air Comet, for instance, the airline in the Marsans travel group, has led the catering company Air Cater to call a creditor's meeting. Air Comet, which declared bankruptcy in late 2009, left a three-million-euro debt trail and its disappearance meant a significant loss of business for a company that employed 109 people. Part of the staff of Air Cater, a filial of the Swiss-based GateGourmet, has been protesting a decision that leaves them without a job when in their opinion, the company has a chance of recovering.

Sometimes it is not just non-payments, but the fierce competition resulting from the lack of contracts and jobs, that has led to the ruin of some businesspeople. This is the case of Javier Ortiz, the owner of Limpiezas Ortiz, a cleaning company with 165 employees that has been around for over two decades. He used to have a contract with the Madrid regional government to clean high schools throughout the southern part of the region, but has been forced to call a creditor's meeting.

"The delay in payments and the loss of certain key contracts are to blame for this," according to José García Caballero, from the CCOO labor union, who has been following this conflict. In the absence of Ortiz, who is on vacation, García Caballero says that things were going well until October of last year, when the competition from big companies in the sector became too fierce. Losing just one major contract can mean the end for a company this size. In March, after his employees hadn't gotten a paycheck for five months, Ortiz felt he had no choice but to call a creditor's meeting. "So far he's managed to get them to collect at least two," says García Caballero.

The financial troubles of public administrations are added to by obligatory cuts in other institutions which have also hit the self-employed. "Up until two years ago, I had been getting orders from a major institution to decorate its headquarters, but the executives aren't buying anything anymore," says one gallery owner specialized in modern figurative painting on El Prado street, in downtown Madrid. On the façade of her gallery, which has been open for over a decade, a huge sign says "closing-down sale." Will it really close? "If things don't pick up, I'm out of here in November. Every minute I keep the gallery open it costs me money, and I'm not selling anything."

Neither she nor many other gallery owners who have felt the impact of the crisis think that their clients - normally wealthy professionals - have been left without a cent. "No, I think the problem is that people are afraid to spend it. What's more, the upper-middle class, which is the one that buys the most art, is disappearing."

Not far from her gallery, on Ribera de Curtidores street in the heart of the Rastro, Madrid's famous flea market, all kinds of shops are plastered with "For Sale" or "For Rent" signs. Bronces Cascorro, for example, closed down in 2007 when the crisis started to rear its ugly head. Since then, few people have shown any interest in the place, "and the few that were interested have found that no bank would loan them the money to buy it," says its owner by phone.

Across the street, the famous classical painting merchant Miranda has been reduced to half its original size. "We closed this part a month ago, because business was so slow," says the owner, Joaquín Miranda, the founder's son. "We'll have to see if we make it or not, because things are very bad," he adds. On the upper floor of the same building, Óleos Ramírez left a year ago, and a sign with a couple of telephone numbers invites potential buyers or renters to call. According to Joaquín Miranda, it's not just due to the global crisis, but to "how expensive the euro is for most of our clients, who are American."

But even within the euro zone, change is not on the horizon. The crisis has led to a new culture of austerity, and cutbacks happen all the time. Department stores aren't doing any remodeling or expanding, and hotels just aren't redecorating like they did a few years ago, either. "We've been doing work for a series of hotels for years, but now we're just not getting any orders," says Miguel Ángel Badorrey, owner of an upholstery business north of Madrid. Badorrey complains that even though his clients don't pay on time, he is required pay their VAT every three months.

"What happens is, the self-employed are forced to advance the money. By our calculations, they've had to advance 1.8 billion euros in VAT that they've invoiced but haven't collected yet," says the president of the ATA, Lorenzo Amor. Juan José de los Mozos, president of the Spanish Association of Tax Consultants, does not think, however, that the cases of creditor's meetings reflect the situation of self-employed workers. "They rarely use that system because it's very expensive," he says.

In fact, Marina Estebaranz has merely liquidated her company, unable to meet monthly expenses. Now the salary guarantee fund FOGASA will be the one to shell out the severance pay for her two former employees. "The few assets we have will be put up for auction - the air conditioner, three computers, three cars - but it won't be enough." Fortunately for Marina, she doesn't have the problem that so many of her colleagues have: she doesn't owe the bank a cent. Luis Miguel Escolar, also the owner of a real estate company based in Algeciras, can't close a business which has led him into personal debt. Escolar, president of the Federation of Self-Employed Workers of Andalusia (a member of CEAT) says he knows of many similar cases.

"Self-employed workers must answer with all their assets, and discontinuing business can be a disaster for your family and those who have acted as a guarantor for you," Escolar says. "In the real estate intermediary business, they come at you from all directions. Hardly any flats are being sold, but when there is someone who is willing to pay, you find that the banks won't give them a loan. Then you find out that they've called up the same client to offer them flats from the bank's portfolio, with all kinds of financing options." De los Mozos also points to the credit crunch as a big part of the problem. "Right now, banks are only refinancing debts; they're not giving out any new loans, and when you don't have the income to pay the interest, the situation gets worse." In his opinion, signs of the crisis had been there since 2007. "But many small construction companies kept on building as if nothing had happened, and developers kept on buying very expensive land from city halls without realizing what was coming. Many developers have gone under."

There is no doubt that many small businesses and entrepreneurs are currently struggling. But we mustn't forget that during the boom, a whole lot of people earned pots of money. Marina Estebaranz, for example, was able to build a gorgeous house in Torrecaballeros. And thanks to the fact that her debts are small ("we've still got a small mortgage," she says), she doesn't have to worry too much about the future even though she's got three children and her partner, the manager of a bus line, is also out of work.