Inaugural Quarterly Index Reveals Decline in Demand for Small Business Loans


PCA Index

Pepperdine University and Dun & Bradstreet Credibility Corp. Survey Highlights Small Business Lending Gaps

LOS ANGELES–In another sign that the economy is contracting, demand for capital from U.S. small businesses has dropped, according to an inaugural quarterly index report released today by Pepperdine University’s Graziadio School of Business and Management, based on a survey conducted in partnership with Dun & Bradstreet Credibility Corp. The report, which compared survey data from the first two quarters of 2012, showed that the percentage of businesses indicating a demand for growth capital dropped from 56% of respondents in Q1 to 52.9% in Q2.

The report also found that small businesses that seek financing continue to face challenges in securing bank loans while middle-market companies have higher access to funding than their small-business counterparts.

“There has been an ongoing debate between banks and business owners about the reasons for a lack of resurgence in small business loan volumes,” said Dr. John Paglia, director of the Pepperdine Private Capital Markets Project and associate professor of finance at Pepperdine University’s Graziadio School of Business and Management. “Banks have been saying that demand is down. Business owners are saying they can’t get credit. Our index data reveal that both are making legitimate arguments—demand is down, but so is access for those needing loans.”

“According to this landmark survey, 40% of small businesses currently have no plans to hire additional employees, underscoring the acute need for increased access to capital to spur small business hiring,” said Jeffrey Stibel, chairman and CEO of Dun & Bradstreet Credibility Corp. “When nearly one-half of all small business owners are forced to transfer personal assets to keep their businesses running, then we know the financial system must step up and help small businesses get what they need to jumpstart the economy.”

Among the survey findings in the index report:

  • Only thirty-three percent (33%) of respondents attempted to raise external financing in the last six months;
  • Of the small businesses seeking bank loans only a third (35%) were successful vs. 77% of larger companies;
  • Furthermore, 78% of small businesses said it was difficult to raise new debt financing (primarily bank loans);
  • To fill the gap, 45% of small business owners had to transfer personal assets to their businesses over the prior six months;
  • The majority of business owners (54%) had an unfavorable view of Initial Public Offerings (IPOs);
  • Thirty-five percent (35%) of businesses with revenue under $5 million and 40% of businesses with revenue between $5-$100 million had a favorable view of private equity;
  • More than half of all business owners (57%) surveyed said that if they had access to both Private Equity and IPO capital they would choose Private Equity; and
  • While a third of businesses (34%) remain unsure which they would choose only 9% said they would choose IPO capital.

The Private Capital Access (PCA) Index Report is the very first of a series of quarterly indicators that will continuously gauge the demand for financing of small and medium-sized privately-held businesses, the level of accessibility of private capital and loans, and the health of private financing markets.

The first two rounds of the PCA Survey collected data from private firms for the first and second quarters of 2012. The survey results reveal weakness in the demand for external loans and other financing, as well as continued and increased difficulty for businesses that attempted to secure loans. The PCA index for the whole sample (4,686 business owners) is 27.0 (on a scale of 0 to 100), a 2.9% decline from the Q1 index value of 27.8. Access to capital is more difficult for small businesses, as shown by the 26.0 Q2 PCA Index for small businesses, representing a 2.3% decline from the Q1 index value of 26.6.

The private capital demand (PCD) index for the entire sample for Q2 2012 fell to 36.5 from the Q1 demand indication of 37.0. Similarly, the demand for financing—specifically from small businesses—fell in the Q2 PCD index to 38.0 from the Q1 demand indication of 38.8.

The Q2 PCD Index number for lower middle market companies is 33.1, an increase from the Q1 demand indication of 32.3. The Q2 PCA Index for lower middle market companies is 33.5, which is a 3.5% decline from the Q1 index value of 34.7. When compared to the small business indicators, lower middle market companies demonstrate lower demand (33.1 vs. 38.0) and higher access (33.5 vs. 26.0).

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