New NFIB Study on Credit Access: Small Business Won’t Recover Fully Until Real Estate Recovers

Date: February 16, 2012
For Immediate Release
Contact:  Cynthia Magnuson 202-314-2036 or [email protected] 

WASHINGTON, D.C., February 16, 2012 — A new study examining small-business access to credit reveals that even while the (slow) economic recovery sent demand for credit on an upward trajectory in 2011, the real estate overhang continues to depress small-business growth and curb capacity to borrow. In 2011, the number of small employers obtaining credit from financial institutions was approximately the same as the two years prior. However, demand for credit increased in 2011, meaning more small employers were shut out of the credit market than in prior years.

The study emphasizes the impact of real estate markets on small businesses. It is a significant issue for small firms for several reasons: 92 percent of small employers own some form of real estate; the construction industry is dominated by smaller firms; small firm owners frequently finance business investments through property and lost significant amounts of collateral when the bubble burst; small businesses endure greater difficulty in acquiring financing than similar businesses in other states where negative equity in home mortgages is highest; and, as the impact on new starts has not been quantified, it has increased uncertainty and dampened new business formation activity.

Small Business, Credit Access, and a Lingering Recession, is the third annual credit study produced by the National Federation of Independent Business’ (NFIB) Research Foundation, and examines the current economic atmosphere for the small-business community. The report also found that while credit access can be a critical impediment to those who seek credit without success, it is dwarfed by two more significant small-business concerns: growing political and economic uncertainty and the protracted problem of poor sales.

“The many fruitless attempts by policymakers to understand and improve the credit market for small businesses are due to the fact that they have thus far failed to adequately address the root causes of the economic crisis – lost confidence and uncertainty, and the housing crisis,” said William J. Dennis, NFIB senior research fellow and report author. “The real estate situation has been the elephant in the room since the onset of the Great Recession and remains a substantial variable in the current plight of small business. Washington has responded by doing just enough to be dangerous, but far too little to have any long-term positive impact. Until a workable solution is implemented, we can only expect glacial economic improvement from the small-business sector. It is not a good time to be optimistic, but small-business owners by nature seem to be.”

Other notable survey findings include:

•    The number of small-business owners accessing credit has not increased over the course of the last three years. An estimated 1.6 to 1.7 million small employers (out of 5.8 million) obtained credit from a financial institution in each of the last three years. However, the demand for credit increased in 2011. The flat number acquiring credit and increased demand effectively means that all new 2011 market entrants were effectively shut-out. This implies that credit standards changed or that nothing but poor credit risks entered the market during the year.

•    Real estate supports much small-business financing. Small employers continue to own large amounts of real estate and related issues continue to be a major drag on small-business recovery. Overall, 92 percent of those surveyed own some form of real estate. Nineteen (19) percent are currently using the proceeds from a mortgage to help finance the firm and a non-mutually exclusive 15 percent are currently using their real estate for business collateral. Eighty-nine (89) percent own their residence, 18 percent a second home, 20 percent their business premises, and 31 percent investment real estate that includes none of the former types. This suggests that a full small-business economic recovery is not likely to occur until the real estate problem is addressed and repaired.

•    There were more attempts to obtain credit in 2011. Fifty-seven (57) percent of small employers sought credit from a financial institution in the last 12 months, a nine percent increase over 2010. Demand for credit lines and credit cards each rose more than one-third over the previous year. The demand for line renewals and loans were flat. More attempts resulted in more rejections rather than more small-business owners receiving credit.

•    A disconnect appears between lenders and small-business owners. Lenders think credit standards have not changed or have eased over the year. Small-business owners think that the credit market tightened in 2011, even in the latter part of the year when optimism was beginning to rise again. However, owners also appear more sanguine over their immediate economic prospects than do lenders.

•    Small-business owners continue to deleverage, part of a trend since at least 2009. Eighty-eight (88) percent of small employers either have credit outstanding or access to it (lines or cards), including 47 percent with credit lines, 29 percent with a business loan, and 79 percent with a credit card(s) used for business purposes. Twenty-eight (28) percent with a card use it for credit; the remaining owners use it as a means of payment (transaction device) exclusively.

•    The number of small-business owners possessing a business loan (not including lines or cards) fell noticeably between 2008 and 2011, from 44 percent to 29 percent. Possession of credit lines has also fallen 10 percentage points over the period, but not since 2009.

•    Other factors equal, more owners who are considered poorer credit risks attempted to borrow in 2011 than those who are considered better credit risks. A number of financial factors, including credit score, differentiate the two groups. Men and owners of larger small businesses were also more likely than their counter-parts to try to borrow.

•    Almost half of small-business owners now consider one of the largest 18 banks in the country their primary financial institution. Twenty (20) percent principally patronize a local or community bank, a sharp decline over the past three years. Though comparatively few list a credit union as their principal financial institution, the number has doubled since 2009.

The latest NFIB Small Business Poll, Small Business, Credit Access, and a Lingering Recession, is available at


NFIB is the nation’s leading small business association, with offices in Washington, D.C., and all 50 state capitals. Founded in 1943 as a nonprofit, nonpartisan organization, NFIB gives small and independent business owners a voice in shaping the public policy issues that affect their business. NFIB’s powerful network of grassroots activists send their views directly to state and federal lawmakers through our unique member-only ballot, thus playing a critical role in supporting America’s free enterprise system. NFIB’s mission is to promote and protect the right of our members to own, operate and grow their businesses. More information is available online at

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