Capital Access Articles

By Karen Axelton

Small business owners are becoming more optimistic about the availability of credit, a new survey by Gallup shows. The Wells Fargo/Gallup Small Business Index poll conducted last month shows that small business owners’ perception of the ease of obtaining credit is the most positive it has been in three years.

The poll found a net difference of -7 percentage points between the 2 percent of small-business owners who say credit will be easy to get in the next 12 months and the 32 percent who say it will be difficult. Of course, that’s nowhere near the +45 of June 2007, before the recession began. The measure hasn’t been positive since a +14 reading in September 2008.

The poll also reflects a continuing trend, as the 32 percent who expect credit to be somewhat or very difficult to get in the next 12 months is down from 38 percent in January and 43 percent in November 2011.

That’s perception, but what about reality? Asked to look back over the past 12 months, 30 percent of small-business owners said that credit was somewhat or very difficult for their companies to get; 22 percent said it was somewhat or very easy to get. Thirty-four percent were either extremely or very confident they could get credit if needed; 39 percent were “somewhat” confident about this.

Small business owners are no strangers to borrowing: Three in four have previously borrowed money or used credit for their businesses. About half (47 percent) use just a little of the credit available to them, while 20 percent use most or all of it.

What does credit enable small business owners to do?

• 76 percent of owners say it has made it easier for them to run their businesses on a daily basis;
• 63 percent say it has helped them keep their businesses open;
• 50 percent say it has helped them expand their products and services, take more risks, and be more profitable;
• 33 percent say it helped their businesses with payroll; and
• 20 percent say it allowed them to hire.

Image by Flickr user Robert Scoble (Creative Commons)

By Maria Valdez Haubrich

Small business lending activity seems to finally be looking up.  In January, alternative lenders—such as community banks, credit unions and others–approved more small business loan applications than they had done in any month during 2011, reports American Banker.

Banks with assets under $10 billion approved 47.5 percent of applications for loans between $25,000 and $3 million. That’s an increase from 43.5 percent approval in January 2011. Credit union approvals grew even more: 57.6 percent of those applications were approved, up from 48.9 percent in January 2011. And alternative lenders saw the largest surge of all.  Community development financial institutions, microlenders and accounts-receivable lenders approved 62.4 percent of small business loan applications, an increase from 49.3 percent in January 2011.

While smaller banks and alternative lenders are still the major source of small business financing, large banks are starting to show positive signs as well. American Banker cites statistics from Biz2Credit that show large banks approved more loan applications in January than in any month of 2011. That doesn’t mean big banks are opening the vaults freely: Biz2Credit reports that banks with assets of $10 billion or more approved only 11.7 percent of loan applications. Before the recession hit, large banks’ loan approval levels hovered in the 40 to 44 percent range.

However, the overall good news seems to be inspiring small businesses to apply for loans—something that many had given up on during the recession years. Biz2Credit reports that its loan application volume was up 35 percent in January compared to December 2011. Although loan applications typically increase in January, this is a larger surge than last year’s 21 percent increase.

Biz2Credit also notes that an increase in startups seeking funding may be one reason alternative lenders are showing a surge in loan approvals. Startups traditionally have difficulty getting financing from bigger banks, which prefer to lend to businesses with a track record of success.

In addition, large banks are still cautious due to factors including the European financial crisis and the debt battle in Congress—both issues that have a disproportionate effect on large banks compared to smaller ones. Biz2Credit predicts that, having reduced their outstanding loan portfolios in December to shore up capital, big banks will cautiously start coming back into the fold and lending to small business.

Image by Flickr user Fiona Shields (Creative Commons)