Apr 30, 201210:23 AMBlog

Fewer small business owners expect difficulty obtaining credit in the year ahead

Apr 30, 2012 - 10:23 AM

Small business owners are finding it less difficult to obtain credit, according to the latest Wells Fargo/Gallup Small Business Index survey. Since the last survey in January, the number of small business owners who found it difficult to obtain credit in the past 12 months declined by 3 percentage points (from 33 to 30 percent). The number of business owners expecting difficulty securing credit over the coming 12 months fell by 6 percentage points (from 38 to 32 percent).

This improved optimism about future credit availability contributed to the Small Business Index’s 8-point growth over last quarter from 15 to 23, and is the strongest Index score recorded since Q3 2008 when the index was at positive 45.

When asked about the amount of debt they carry today compared with one year ago, 32 percent of business owners said they are carrying less debt, 20 percent are carrying more debt and 47 percent are carrying about the same amount of debt.  Nearly two-thirds (62 percent) of respondents expressed some level of comfort with the debt load they are carrying today, compared with 36 percent who are somewhat or very uncomfortable.

“The survey results are consistent with the de-leveraging trend we’ve seen over the last two years among the small business owners we serve,” said Marc Bernstein, Wells Fargo’s head of small business. “Many business owners who took on a significant amount of debt before or during the Great Recession have been focused on paying down existing debt and putting their business in a better position as the economy recovers.”

Thirty-nine percent of small business owners said they were able to obtain all the credit they required in the past year. Twenty percent said they were not able to obtain the credit they needed in the past year and 38 percent of small business owners said they did not require credit.

Business owners use credit for a variety of business needs. The small business owners surveyed said having credit has (in order of most “yes” responses to least):

• Made it easier to run your business on a daily basis (76 percent)

• Helped your business to stay open (63 percent)

• Allowed you to expand your products or services (57 percent)

• Allowed you to take more risks (53 percent)

• Made you a more profitable business (53 percent)

• Helped with your payroll (33 percent)

•  Allowed you to hire (21 percent)

Looking ahead, 14 percent of small business owners said they planned to apply for new credit over the next year. Of those who planned to apply, responses were equally split between financing short-term needs, like operating expenses, and long-term needs like capital investments.

Small Business Index

Wells Fargo, together with Gallup, surveys small business owners quarterly across the nation to gauge their perceptions of their present situation (past 12 months) and future expectations (next 12 months) in six key areas: financial situation, cash flow, revenues, capital spending allocation, hiring, and credit availability. 

The improvement in the overall index this quarter  was driven by increases in both the future expectations score (from positive 21 to positive 24) and an increase in the present situation score (from negative 6 to negative 1).  Statistically significant improvements were seen in three of the six future expectations components:

• Financial situation – Fewer (15 percent vs. 21 percent in Q1 2012) expect their company’s financial situation to be very or somewhat poor over the next 12 months.

• Cash flow – Fewer (18 percent vs. 23 percent in Q1 2012) expect their cash flow to be very or somewhat poor

• Credit access –Fewer (32 percent vs.  38 percent in Q1 2012) expect credit to be very or somewhat difficult to obtain

Click here to listen to a podcast with Wells Fargo Senior Economist Dr. Scott Anderson and download complete survey results.

            

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