SBSI Wave- III

As of December, the top two funding sources for small businesses have been cutting owner pay (46 percent did so in the past two years) and a loan from owner savings (42 percent). Usage of these two sources has grown significantly over the past six months and is now more prevalent than credit cards, bank lines and bank loans (see Figure 8). As in previous waves of the SBSI Survey, small business loans and investors are insignificant as sources of financing for owners. Given the spike in reliance on personal assets, it is a reasonable assumption that small businesses are becoming less credit worthy to obtain financing in the future.

Figure 8

Owners were asked if they perceived that any sources of financing had become scarcer or vanished in the past year (see Figure 9). Among all small business owners, the most often cited source that is getting scarcer is bank loans – 18 percent of small business owners believe bank loans are becoming scarcer or vanishing, and the share is up significantly from six months ago (13 percent), indicating that the problem is getting worse. The problem with bank loan availability is understated here because not all of those asked the question rely on this type of credit. Among small businesses that have used bank loans in the past two years, 43 percent believe this financing avenue is becoming scarcer.

Other credit sources are viewed as becoming scarcer by at least a tenth of small business owners. A full 14 percent believe business lines of credit are becoming scarcer, but the incidence is 25 percent among those who have relied on the source in the past year. Another 12 percent believe credit card financing is becoming scarcer, but the incidence is 23 percent among those who have relied on credit cards.

Figure 9

To summarize the capital situation for small businesses in America, capital resources are getting stretched as access to bank loans drops and owners start tapping into their own savings. As noted in a later section, many have also started cutting their own pay as a result of the recession.

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