Small Business Conditions and Their Tie to Credit Markets William J. Dennis, Jr. NFIB Research Foundation GIC Conference Rome, Italy April 7, 2011
Principal Data Sources • Small Business Economic Trends – monthly since 1986 – quarterly since 1973 – from NFIB membership
• Small Business Access to Credit – 2009 and 2010 – from D&B files
• www.nfib.com/research
Small Business Optimism Index (Recovery from NBER Trough) 2009:Q2
2001:Q4
1991:Q1
1982:Q4
1975:Q1
110 105
Index
100 95 90 85 80
Trough
Year 1
Year 2
Year 3
Actual Earnings Changes Last Three Months Compared to the Prior Three January Quarter 1974 to January Quarter 2011
0 -10 -20
rcn etP N
-30 -40 -50 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 YEAR
Current Job Openings Percent With Positions Not Able to Fill Right Now January Quarter 1974 to January Quarter 2011
Outlook for Expansion Percent Next Three Months “Good Time to Expand” January Quarter 1974 to January Quarter 2011
Actual Prices Actual Last Three Months January Quarter 1974 to January Quarter 2011
The Central Issue? Tight Credit Markets or Poor Sales and Weak Credit Demand
Actual Sales Changes Last Three Months Compared to Prior Three January 1974 to January 2011 30 20 10 0
rcn tP e N
-10 -20 -30 -40 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 YEAR
Ratio of Satisfied to Unsatisfied Small Business Borrowers 12 10
Actual (red)
8 6
Moving Average (black) 4 2 0
06:1
07:12
09:6 Year: Month
11:2
Single Most Important Problem Sales and Finance/Interest Rates January Quarter 1974 to January Quarter 2011
Success Obtaining Credit: Those Attempting to Borrow and Not Success Obtaining Credit
2009 Try to Borrow
2009 All Firms
2010 Try to Borrow
2010 All Firms
All credit wanted Most credit wanted Some credit wanted No credit wanted DK/Refused Total
40% 10 21 23 5 100%
22% 6 12 13 3 55%
41% 19 18 16 6 100%
20% 9 9 8 3 48%
Did Not Try Didn’t want to borrow Discouraged borrower DK/Refused Total
Total
88% 11 1 100%
Did Not Try 39 5 * 45%
100%
81% 15 4 100%
42% 8 2 52%
100%
Predictors of Borrowing Success • • • • • • • • •
Better credit scores Fewer credit types currently in use Fewer purposes for which credit is to be used Fewer mortgages outstanding Employment growth over the last three years More properties owned free and clear Not located in housing bubble states Not patrons of $100 billion+ bank Not in Professional, Tech. or Scientific Servs.
Small Business Credit Access by Size of Principal Bank Patronized and Year 100% 80% 60%
All Most Some None N/A
40% 20% 0% Largest Smallest Banks Banks 2009
Largest Smallest Banks Banks 2010
Types of Real Estate Small Employers Own 100% Home-Based Businesses
80% 60% Five +
40% 2 to 4
20% One Only
0% Residence
2nd Residence
Business
Investment
Real Estate Owned by Small Employers, Its Financing, and Business Use - 2010 Characteristic Own (at least one property) 1st Mortgage 2nd Mortgage Upside-Down Mortgaged for Bus. Purposes Collateralized
Summary
If at Least If at Least One Owned One Mort.
95% 68 17 8
71% 18 9
25% 12
17 11
18 11
21 16
Starts and Terminations of Employer Businesses 700
Thousands
650 600 550 500 Starts
Terminations
450
Source: Office of Advocacy, SBA
20 10
20 00
19 90
400
Conclusion • Small business economic conditions remain weak. • The small business sector has lagged in the recovery. • Sales, not credit, has been and remains the issue for most small businesses. • Ownership of significant real estate assets continues to be a drag on the small business sector and will for a time.