Credit Access
• One-third (34%) of small business owners, defined as small employers having 250 or fewer employees, think the nation’s financial problems have “significantly” affected their business and one-quarter (26%) think it threatens their survival. However, 45 percent designate slow or lost sales as their principal immediate problem, followed by the unpredictability of business conditions (23%), falling real estate values (9%) and only then an inability to obtain credit, tight credit drawing virtually the same number of cites as the real estate value issue.
• Since the beginning of early September, 30 percent of small employers applied for credit in one form or another, at least half of which applied more than one time. Seventy (70) percent did not apply of which 12 percent, or 8 percent of the population, did not apply because they thought they could not get credit they wanted.
• Forty-one (41) percent of small employers applying since early September obtained all the credit they wanted, while 8 percent obtained most of it. However, 14 percent obtained just some of the credit they wanted and 34 percent obtained none of it.
• The ability to obtain credit appears statistically related to financial strength, as measured by greater sales growth in the last two years, fewer mortgages taken out to finance other business activity, fewer upside-down properties, as well as the owner’s positive evaluation of firm performance against the competition, and firm maturity, more specifically, years of operation. Discouraged borrowers, that is, owners who do not attempt to borrow for fear of rejection, are statistically related to what appears to be weak balance sheets, specifically, falling real sales over the last two years, ownership of more upside-down properties, lesser use of real estate for collateral, more mortgages taken out to finance other business activity, and the owner’s negative evaluation of firm performance against the competition.
• Financial institutions changed the terms or conditions of a loan, line or credit card for 18 percent of small employers. (This figure is somewhat low because only the largest line of credit and the most important credit card used for business were evaluated.) Most of the changes would be termed negative, such as a lower limit on a credit card or higher interest
on a line of credit, though not all changes, particularly with respect to lines, were adverse. About four in 10 report the changes as harmful to the business while the other six claim the changes either had no impact or were more irritating than harmful.
• Trade credit is growing more difficult to procure. Of the 80 percent who use trade credit, 30 percentage points think it has been getting tighter since early September, 14 percentage points a lot tighter, while 46 percentage points see no change.
• Small business owners are heavily invested in real estate. Ninety-six (96) percent own their personal residence, 49 percent own all or part of the building and/or land on which their business sits (excluding the one-quarter who operate primarily from the home), and 41 percent own investment real estate, excluding their residence and business.
• Real estate, particularly home mortgages, is frequently used to finance or collateralize other business assets. Seventy-six (76) percent have at least one mortgage on the real estate they own with 13 percent having three or more mortgages, 22 percent having taken out at least one mortgage to finance business activities. Sixteen (16) percent use real estate to collateralize other business assets, including 10 percent who use their homes as collateral. About one in 10 (9%) own at least one currently upside-down property. The financial leverage homes provide businesses in a weak economy with declining real estate values is a matter of concern.
