US Small Businesses Still Struggling to Borrow, Finds Greenwich Associates

At the start of 2010 there was widespread hope that an economic rebound and a strengthening bank sector would combine to restore the flow of credit to US businesses. Actual results last year were mixed. Research by Greenwich Associates shows credit conditions have become highly favourable for the largest US companies, who currently have ample access to both bank credit facilities and low-interest bond offerings. Likewise, credit conditions have been improving for healthy middle market companies. Among small businesses and companies at the lower end of the middle market, however, credit conditions have failed to improve and in some cases even worsened in 2010.

Half of the 221 small businesses participating in the latest Greenwich Market Pulse Survey say it is harder to secure credit today than it was at this time last year – including roughly 33% of businesses that say it is much harder to obtain loans today. Thirty percent of small businesses say credit conditions are unchanged from the prior 12-month period, with about 15% reporting that credit conditions have improved. Among the 167 middle market companies participating in the Market Pulse, 35% say its gotten harder to secure credit, 35% say credit conditions are unchanged and approximately a quarter say it is easier to obtain bank credit now than at the same time last year.

Continued difficulties in securing affordable credit have left many small businesses and weaker mid-sized companies wondering about their ability to sustain their businesses through the year ahead. Approximately 70% of small businesses say they are concerned about their ability to access the financing they need to run their businesses in 2011, as do roughly 60% of middle market companies.

“These figures are supported by our research showing that US companies are increasingly planning to fund capital investments with cash on hand, as opposed to bank credit,” said Greenwich Associates consultant Chris McDonnell. “Many smaller companies have simply accepted the fact that credit is not an option right now and that new investments will have to be funded with retained earnings.”

Grim Outlook for Economy and Employment

Results of the latest Greenwich Market Pulse Survey reveal some ominous signs for the US jobs market: Only 15% of small businesses and approximately 20% of middle market companies expect the US economy to improve over the next six months. In contrast, 35% of small businesses and roughly a quarter of middle market companies expect economic conditions to deteriorate over the next six months, with the remainder predicting that economic conditions will remain unchanged.

“Our results consistently demonstrate that although a lack of credit remains a serious impediment for small business growth, the slow economic recovery is the real impediment to investment growth and hiring,” said McDonnell.


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