Nearly One-third of Manufacturing Firms to Seek 2008 Credit Level Increase

Nearly one-third of the small manufacturing businesses participating in the
latest Small Business Research Board (SBRB) study will request credit level
increases during 2008, according to the results of the poll. The comprehensive
SBRB study of owners and managers of small manufacturing businesses also
indicated that while their relationships with lenders are mostly "good" or
"excellent," they are being challenged by greater pressure for personal
guarantees, higher loan rates and stricter covenants.

Of the owners and managers responding to the SBRB poll, 32.6% will request an
increase in their lines of credit this year. Meanwhile, 53.5% said they will
maintain their current loan levels through 2008 and another 14% will seek to
reduce their credit needs, according to a nationwide SBRB study. This is a
departure from 2007 when 21.1% of these respondents held the line on credit
changes from the prior year, 14.3% decreased their credit needs and 27.1%
increased their loan levels. More than 37% of the respondents indicated they do
not have loans nor a line of credit.

During 2007, 42% of the participants felt that access to credit was unchanged
from the previous 12 months while 36.8% said it was "easier." Of the remaining
respondents, 5.3% described access to credit as "more difficult" and 15.83%
indicated that access to credit was "impossible."

The nationwide SBRB/Business Today Small Business Lending
Relationship and Loan Requirements Study found 88.5% of the manufacturing
businesses enjoy a "good" to "excellent" relationship with their principal
lenders. The study also indicated that 81.1% of the relationships with their
current principal lender have lasted at least five years, with 69.6% lasting 10
years or more. According to the report, 1.4% of the small businesses are in
their first year with their current lead lender while 7.2% said their
relationship is in the second year. Of these same respondents, 67.4% said they
were with their previous key resource for five years or longer before making a

Slightly more than 37% of the owners or managers said their business has a
relationship with one lender and nearly 26% 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, 40% of the respondents said their principal lending
relationship is with a local bank, 27.1% said the relationship is with a
regional bank and an equal 27.1% said the relationship is with a national

The study also found that among owners and managers of small
manufacturing businesses that:

  • of those using their residence as collateral, one-half of the lenders are
    adjusting the borrowing levels. In those instances, 78.9% increased the credit
    ceilings and 21.1% decreased the credit amount;
  • 21.9% of those responding to The SBRB/Business Today Small Business
    Lending Relationship and Loan Requirements Study contend more pressure for
    personal guarantees are having the most significant impact on their business.
    Higher loan rates (19.2%) and stricter covenants (17.8%) followed as the second
    and third most significant factors.

The SBRB report co-sponsored by Business Today Magazine was solely
focused on examining issues related to small business and their relationship
with lenders. The study also indicated that greater expenses to obtain a loan
(listed by 15.3%), stricter covenants (14.4%) and increased covenants (14%) also
were among the top five lender related issues. They were followed by greater
expenses required to comply with loan requirements (9.3%) and the need to
upgrade to an audit (6.7%).

This is the sixth 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

The next five releases will detail the small businesses involved in the
manufacturing, food and beverage, retail, distribution and wholesaling,
transportation and automotive industries. Constructing and contracting was
covered in the fifth release.

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

Source: Small Business Research Board

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