SOURCE: Small Business Research Board

January 25, 2008 14:23 ET

Distributors, Wholesalers to Moderate 2008 Credit Needs; Nearly Two-Thirds Expect to Remain at 2007 Level, Says Small Business Research Board Study

Ninth in a Series -- Majority of Respondents Describe Relationships With Lenders as "Excellent" Although Challenged by Higher Loan Rates, More Pressure for Personal Guarantees

NORTHFIELD, IL--(Marketwire - January 25, 2008) - More small distribution and wholesale companies participating in a nationwide Small Business Research Board (SBRB) study expect to maintain their current loan levels through 2008 with nearly two-thirds indicating they will hold the line "as is" -- an increase of more than 20% from the previous year.

The SBRB study of owners and managers of small distribution and wholesale businesses released today also indicated that while their relationships with lenders are mostly "good" or "excellent," they are being challenged by higher loan rates and greater pressure for personal guarantees.

Of the owners and managers responding to the nationwide SBRB poll co-sponsored by Business Today, 64.3% said they intend to maintain their current loan levels through 2008 while 7.1% said they would decrease their loan needs. The remaining 28.6% said they would seek to increase their loan limits.

On an unadjusted basis, 41.1% said they held the line on their loan ceilings in 2007 while 14.1% indicated they reduced their loan needs last year when compared to 2006. Another 22.4% said they increased their credit ceiling in 2007. The remaining 22.4% said they did not have a line of credit nor any loans.

On an adjusted basis, removing those who indicated they didn't have a loan, 53% said their 2007 loan limit was the same as in 2006 while 18.1% decreased their loan needs last year. The remaining 28.9% increased the limit in 2007.

During 2007, more than 57% of the participants felt that access to credit was unchanged from the previous 12 months while 25.3% said it was "easier." Of the remaining respondents, 13.9% described access to credit as "more difficult" and 3.8% as "impossible."

The nationwide SBRB / Business Today Small Business Lending Relationship and Loan Requirements Study found 56.1% of the distribution and wholesale businesses enjoy an "excellent" relationship with their principal lenders and 29.9% have a "good" relationship.

The SBRB / Business Today study also indicated that 81.5% of the relationships with their current principal lender have lasted at least five years, with 60.2% lasting 10 years or more. According to the report, 1.9% of the small businesses are in their first year with their current lead lender while 5.6% said their relationship is in the second year.

Of these same respondents, 67.6% said they were with their previous key resource for five years or longer before making a change. Conversely, 7.4% were with their prior lead lender only one year and 10.3% had a relationship of just two years with the previous resource.

The study indicated that 38.5% of the owners or managers said their businesses have a relationship with one lender and 28.4% have a relationship with two lenders. The remainder have concurrent relationships with three or more lenders. Questions about the quality of the relationships only pertained to the principal lenders.

Additionally, 49.5% of the respondents said their principal lending relationship is with a local bank, 12.1% said the relationship is with a regional bank and 30.8% said the relationship is with a national bank.

The study also found that among owners and managers of small distributors and wholesalers that:

--  50.6% use their residence as collateral and of those doing so, more
    than 40% are subject to rate adjustments by lenders.  In those instances,
    62% increased the credit ceilings and 38% decreased the credit amount;
--  30.2% of those responding to The SBRB / Business Today Small Business
    Lending Relationship and Loan Requirements Study contend higher loan rates
    are having the most significant impact on their business. More pressure for
    personal guarantees (17.2%) and greater expense to obtain a loan (16.4%)
    followed as the next most significant factors.

The study also indicated that increased covenants and stricter covenants were also among the top five most significant factors.

The SBRB / Business Today report solely focused on examining issues related to small businesses and their relationship with lenders. This is the ninth in a series of 11 SBRB / Business Today reports examining small business lending relationships and loan needs. Key findings in the previous reports studied the trends of all small businesses throughout the U.S. and indicated that:

--  26.8% of all respondents will raise their loan requests in 2008 for an
    increase of 3.5 points from the 23.3% of the small business which elevated
    their loan levels in 2007;
--  of those business owners using their home as collateral, 42.4% said
    their lenders had amended their borrowing levels with two-thirds (66.7%) of
    the respondents receiving higher credit ceilings and the balance receiving
    lower credit limits; and
--  higher loan rates and increasing pressure to provide personal
    guarantees are the two greatest factors impacting the relationship of small
    businesses with lenders.

The next two releases will detail the small businesses involved in the transportation and automotive industries. The construction and contracting, manufacturing, food and beverage and retail industries were covered in four preceding releases.

Business Today, Inc. is dedicated to serving the information needs of owners and managers of small businesses. The primary goal of Business Today, based in Buffalo Grove, Il., is to inform and educate by providing timely, useful information that will help readers of Business Today Magazine and attendees at Business Today Workshops contend with the daily demands of running their businesses as well as provide insight on achieving long term growth. Business Today Magazine is published quarterly while Business Today Workshops are conducted throughout the U.S. to provide educational resources for entrepreneurs and their managers.

The Small Business Research Board ascertains and reports attitudes on a wide variety of national and international issues that impact small businesses. These studies benefit owners and managers and also provide opportunities for third parties to gain real time insight into the attitudes of small businesses.

The latest information about the Small Business Research Board can be found at

For more information about this poll, results of previous studies or other matters related to the Small Business Research Board, please contact Raymond D. Minkus, (847) 441-4192.

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