The Small Business Credit Recession

Fhe SMALL BUSINESS CREDIT RECESSION: Small Busineso HAS IT BECOME HARDER TO OBTAIN NECESSARY BUSINESS CREDIT? A recent report by the NFIB indicates that small businesses are finding it increasingly harder to obtain the credit they need. Resulting in a lack of money for crucial operations, this "credit recession" could have serious implications for the viability of many small businesses. Just how hard is it to obtain credit? And what do owners plan to use this needed money for? THE NEED FOR AVAILABLE CREDIT Business credit is becoming significantly harder to obtain. The percent of small businesses holding a loan or credit line has fallen significantly: CREDIT LINES BUSINESS CREDIT CARDS OF THOSE USING CREDIT CARDS: 74% 64% 57% 59% Use One 46% 29% Use Two 6% Use Three 4% Use Four or More 2008 2009 2008 2009 Access to credit is now the third most common problem that small business owners report encountering: Slow or declining sales Access to Credit Other 51% 22% 8% 8% 11% Uncertainty Falling Real Estate Values THE SCOPE OF THE CREDIT PROBLEM Far fewer small businesses are reporting receiving the credit they need as compared to years past. IN 2009, 55 PERCENT OF SMALL BUSINESS OWNERS ATTEMPTED TO BORROW. OF THOSE BUSINESSES: 40% 21% 23% This is a considerable decline from the mid-2000s when 90 percent of small businesses 10% had all of their credit needs met. Had all of their Had most of their credit needs met Had some of their credit needs met Had none of their credit needs met credit needs met WHICH TYPES OF CREDIT ARE THE HARDEST TO GET? Small business owners report that some forms of credit have become harder to obtain than others. Satisfactory terms approved Unsatisfactory terms approved Rejected 10% 20% 30% 40% 50% 60% 70% 30% Applied for a new credit line: 20% 16% 50% 55% Applied for a new credit line: 21% 19% 22% 54% Applied for a new credit line: 19% 19% 21% 39% Applied for a new credit line: 16% 11% 45% 10% 20% 30% 40% 50% 60% 70% PLANS FOR THE REJECTED CREDIT An enormous percent of business owners reported intending to use credit for daily operating cash. The unavailability of such credit could force many of these businesses to close their doors. OF BUSINESSES WHO HAD THEIR CREDIT REQUESTS REJECTED: 71% 48% 40% 35% 34% 24% planned to use it for day-to-day operating costs planned to use it for inventory investment planned to use it for additional equipment planned to use it for planned to use it to planned to use it for a reserve cash cushion replace old equipment real estate or structures THE ROLE OF THE PRINCIPAL BANK The size of the principal bank was found to have a considerable impact a small business's success in obtaining the credit they need. Other important factors included how many mortgages the business owner had in their name, and the credit score of the owner and business. 30 percent of businesses using a large bank (one with over $100 billion in assets) 50 percent of those using a small-to-mid- sized bank received received satisfactory credit. satisfactory credit. SOURCE: NFIB.COM FOCUS