More small food and beverage companies will either seek increases in their 2008
credit limits or at least try to sustain their 2007 levels, according to owners
and managers participating in the latest Small Business Research Board (SBRB)
study. The SBRB study of owners and managers of small food and beverage
businesses also indicated that while their relationships with lenders are mostly
"good" or "excellent," they are being challenged by higher loan rates, greater
pressure for personal guarantees and increased covenants.
Of the owners and managers responding to the nationwide SBRB poll, 27.8% will
request an increase in their lines of credit this year, while 63.9% said they
intend to maintain their current loan levels through 2008. The remaining 8.3%
said they would decrease their loan needs. On an unadjusted basis, 19.6% said
they increased their loan ceilings in 2007 while 43.5% said they held the line
last year as compared to 2006 and 13% decreased their loan limits. The remaining
23.9% 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, 25.72% increased
the limit in 2007 while the limit for 57.14% remained steady and the level for
17.14% decreased when compared to 2006.
During 2007, more than 53.1% of the participants felt that access to credit
was unchanged from the previous 12 months while 31.3% said it was "easier." Of
the remaining respondents, 15.6% described access to credit as "more
The nationwide SBRB/Business Today Small Business Lending
Relationship and Loan Requirements Study found 95.8% of the food and beverage
businesses enjoy a "good" to "excellent" relationship with their principal
lenders. The study also indicated that 79.8% of the relationships with their
current principal lender have lasted at least five years, with 61.7% lasting 10
years or more. According to the report, 2.14% of the small businesses are in
their first year with their current lead lender while 6.4% said their
relationship is in the second year.
Of these same respondents, 66.6% said they were with their previous key
resource for five years or longer before making a change. Conversely, 11.1% were
with their prior lead lender only one year and 7.4% had a relationship of just
two years with the previous resource.
Slightly more than 40% of the owners or managers said their business has a
relationship with one lender and nearly 25.5% 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, 44% of the respondents said their principal lending
relationship is with a local bank, 17% said the relationship is with a regional
bank and 21.3% said the relationship is with a national bank.
The study also found that among owners and managers of small food and
beverage businesses that:
- of those using their residence as collateral, 54.3% of the lenders are
adjusting the borrowing levels. In those instances, 66.7% increased the credit
ceilings and 33.3% decreased the credit amount;
- 25% of those responding to the study contend higher loan rates are having
the most significant impact on their business. More pressure for personal
guarantees (16.7%) and increased covenants (16.7%) tied for second as the next
most significant factors.
The study also indicated that stricter covenants (14.6%), greater expenses to
obtain a loan (10.4%) and greater expense to comply with loan requirements
(10.4%) were also among the top five most significant factors.
Source: Small Business Research Board