February 17, 2012
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Company Culture
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Dan Phillips
The economy may have started showing signs of recovery toward the end of 2011, but small businesses were more likely to be rejected by lenders, according to a new report.
The percentage of small employers that managed to secure all or most of the credit they sought sank from 60 percent in 2010 to 50 percent in 2011, according to the National Federation of Independent Business's report.
For each of the past three years, close to the same number of small companies—between 1.6 million and 1.7 million businesses—managed to secure credit from a financial institution. But more small businesses tried to get a loan or line of credit in 2011, meaning more got turned away. “Demand rose relatively substantially . . . but we didn’t see any net new people getting credit,” said William Dennis, NFIB senior research fellow and the report’s author.
According to the survey of some 850 small businesses, 57 percent applied for a loan from a financial institution last year–a 9 percent increase over 2010. Companies were most interested in securing new lines of credit and credit cards than any other kind of loans (demand for each rose more than a third, year over year), while requests for loans and line renewals remained flat. Just 29 percent of small businesses were carrying a loan at the end of 2011, a sharp decline from the 44 percent that were three years ago.
Small businesses’ financials are, of course, partly to blame for their inability to get credit–a lot of the firms applying for loans did not have credit profiles that suggested they were a good risk. But the NFIB’s annual credit report fingered the slumping real estate market as responsible for small businesses’ inability to get credit, calling it “the elephant in the room since the onset of the Great Recession.”
Nearly all of the businesses surveyed own some sort of property, and the assets’ declining values cut small business’s clout with creditors. Lots of entrepreneurs have used their company’s or their own personal property to fund their businesses. Nineteen percent have used mortgages or the proceeds from mortgages and 15 percent have posted property or other collateral to get a business loan.
“With depressed balance sheets and the loss of collateral [value], businesses that would otherwise be capable of borrowing can’t,” Dennis said.
He noted: "The many fruitless attempts by policymakers to understand and improve the credit market for small businesses are due to the fact that they have thus far failed to adequately address the root causes of the economic crisis–lost confidence and uncertainty, and the housing crisis."
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Dan Phillips 1 months ago
If they want the economy to recover all parties(government,banks etc) had better let the hiring machine get back to business. Small Business created 85% of all new jobs. That has dropped to around 65%.Tax cuts,health care debates and gas prices are not helping but no loans and major corporations sending work overseas and stealing niches at home are doing more damage.www.thelastwillbook.com