Wednesday, September 13, 2006

Credit is Tighter and Rates are Higher

According to the National Federation of Independent Business (NFIB), the nation's normally upbeat entrepreneurs turned decidedly downbeat in August, forcing the NFIB Small-Business Optimism Index to fall more than two points to 95.9 (1986 = 100), the lowest reading recorded since March, 2003. Eight of the 10 Index components posted declines.

What I found quite interesting was the section of the report discussing business loans and current borrowing trends. Here are a couple of excerpts...

Borrowing levels are up: Regular borrowing activity was reported by 46 percent of owners, up eight points from July and the highest level recorded in the history of the monthly surveys (started in 1986). Regular borrowing activity last peaked when the prime rate was over 20 percent. This time the prime rate is only around eight percent and borrowing activity is not nearly as high, the peak being 53 percent.

Credit is getting tighter: The net percent of owners reporting loans harder to get in recent months rose a point to a net eight percent (nine percent said “harder,” one percent said “easier”), the highest reading since 2000. It looks like the tightening in monetary policy is starting to bite.

Rates are higher: Owners reported that the actual rate paid on short term loans has risen to 9.0 percent in August 2006 compared to 7.6 percent in August 2005.

What has your business experienced in the world of financing? If your business is facing cash flow challenges, don't hesitate to give me a call.

Please feel free to contact me with questions or ideas for future articles!

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