Signs of Optimism Among SMEs, but Lack of Credit Could Threaten ‘Green Shoots’

For the first time in two years, a majority of US small and mid-sized enterprises (SMEs) think the economy will improve in the coming six months, according to research from Greenwich Associates. However, companies’ continued difficulties obtaining credit could pose a serious risk to any nascent recovery.

The Greenwich Optimism Index (GOI) tracks the economic sentiment of SMEs in the US. The GOI for mid-sized businesses had been in negative territory since the third quarter of 2006, meaning that the number of mid-sized companies predicting economic slowdown in the coming six months outnumbered those predicting economic growth. After an initial dip and rebound in the second half of 2006, the GOI for US small businesses had been in negative territory since the first quarter of 2007. The index for both groups edged into positive territory in the most recent Greenwich Associates’ survey, which asked companies for their outlooks for the fourth quarter of 2009.

“Although this positive sentiment supports the notion that the economy may begin to recover in the fourth quarter, the fact that small and mid-sized companies continue to struggle to obtain credit critical to their businesses could jeopardize the much-discussed ‘green shoots,'” said Greenwich Associates consultant Steve Busby.

Almost 70% of small businesses and nearly two-thirds of mid-sized businesses say their access to credit is more limited now than it was at this point in 2008. The proportion also includes 40% of small businesses and one-third of mid-sized businesses reporting that it has become ‘much harder’ for them to secure credit over that period. (One quarter of small businesses and 28% of mid-sized businesses say credit availability has not changed from 2008 to 2009; across both groups, 5-6% say credit conditions have improved.)

“Credit availability for small and mid-sized businesses continues to be a major issue, and has steadily become more of an issue since the second half of 2007,” said Busby. “It will be difficult for a recovery to gain any real traction until an uptick in credit access occurs.”


Related reading