Is Small Business Access to Credit About to Tighten? [CHART of the Week]

The most recent data from the National Federation of Independent Business (NFIB) suggests that small business credit is about to become harder to get once again. Between March and April of 2011 the difference between the fraction of business owners saying that credit will become more available and the fraction saying that it will become less available turned more negative, after improving for nearly a year.

In March, the figure below shows, the share of small business owners who said credit conditions would get better over the next three months was nine percentage points lower than the share that said conditions would get worse. But in April, the gap had risen to 13 percentage points.

Although this measure tends to fluctuate from month to month, it had improved from poor levels seen during the Great Recession. Unfortunately, we are now closer to very negative levels expectations about future credit availability seen at the depths of the recession than we are to the more favorable ones experienced in the summer of 2007 before the recession began.

Credit tightening - small businesses

Click for larger chart


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

7 Reactions
  1. Thanks for the data, Scott.


    Isn’t it up to our friendly neighborhood banker to loosen up or tighten up credit?

    I don’t feel that small business owner’s “opinions” should be used as actual data concerning the actual availability of credit.

    The Franchise King®

  2. Hi Scott,

    Thanks for the statistics, it’s kind of sad to see this general perception of small business owners of not getting credit. This would definitely de motivate a lot of people from venturing into new businesses that are quiet fruitful for the economy. Thanks for sharing!

    Riya Sam

  3. I think the problem for import/exporters is the US v Euro (as one example) is reducing their profit margin.

    For once a ‘weak’ dollar could be better than a strong one.


  4. Expectations related to access to credit does influence when and to what degree a small business will seek it. It may be helpful for business owners to research access the spectrum of SBA loans available. Often, local banks are not very knowledgeable about them but these programs can provide funding to businesses otherwise excluded from a bank’s credit boxes.


  5. Statistics are not usually as clear cut as they seem. In this case, any stat coming out of NFIB has to be analyzed in light of the membership, which is weight heavily by highly established older, local, brick and mortar/ store front businessses (also largely politically conservative). All that works into the mix.

    In this case, I would suggest that this narrow demographic means that credit is MUCH harder to get than even suggested here. Older established businesses take out a lot less credit than newer ones, and this demographic isn’t showing a good representation of the high growth in online and technology businesses that don’t have store fronts and would be very unlikely to join NFIB.

    Surveys coming out of NFIB throughout the recession have consistently said credit is not the problem, lower customer demand is the problem. That is how a highly established, older business reacts to a recession. But my experience in working with businesses largely under five years old is that credit has been and continues to be the principle issue in restarting the economy. Older, established businesses are not the ones that increase employmant. According to the SBA and other sources, the #1 job growth sector is businesses with 1-9 employees less than a few years old (#2 is 10-19).

    Bottom line – credit is a bigger problem and a bigger factor than NFIB reports.

  6. Hey Scott, nice article. I agree with Chuck that statistics can often be manipulated, however, new credit of any sort is getting harder to come by for the middle class for everything these days.

  7. That would just be frightening for the economy! This country is built on small business and if you’re a young entrepreneur with little credit history, it’s becoming near impossible to secure a business loan without having a perfect personal credit score. My advice is for those out there having trouble securing a business loan is to build yourself a solid personal score. It can be accomplished in many different ways and all by yourself. No outside assistance is required, so forget all of those credit repair companies trying to sell you the moon. Stick to their credit improvement plans and you should be well on your way to fulfilling the American dream!! —Todd