One-Third of U.S. Small-Business Owners Feel Debt Burden

PRINCETON, NJ -- Thirty-six percent of U.S. small-business owners who have borrowed for their business in the past are very or somewhat uncomfortable with their company's debt, according to the April Wells Fargo/Gallup Small Business Index poll. Sixty-two percent of owners are very or somewhat comfortable with the debt their company is carrying.

The survey was conducted April 2-6, 2012, with a random sample of 603 small-business owners. The same survey found a four-year high in small-business-owner optimism and a slight increase in optimism about future credit availability According to the poll, 76% of small-business owners have ever carried debt.

Owners More Likely to Be Reducing Company Debt Than Increasing It

Nearly one in three small businesses who have borrowed in the past have less debt now than they did 12 months ago, compared with 20% who say they have more debt. The remaining 47% have about the same amount of debt that they had a year ago.

Half of Owners Say It Is Difficult to Pay Down Company Debt

Even as small-business owners seek to reduce their debt, 49% say it is extremely difficult (10%), very difficult (10%), or somewhat difficult (29%) to pay down their current business debt.

One in Five Small Businesses Not Able to Get All the Credit They Need

Of the owners who have borrowed sometime in the past, 20% say they have been unable to get all the credit they needed over the past year. The vast majority say they did not need additional credit over the past year (38%) or that their business was able to obtain all the credit it needed (39%).

Three in four owners whose small businesses have not been able to get all the credit they needed say their inability to borrow has negatively affected their business. Small-business owners use credit not only to make it easier to run their business, but also to do everything from staying open to expanding their products and services, taking on more risks, making payroll, and hiring new employees.

Implications

Four years after the recession and financial crisis, 36% of small-business owners who have borrowed in the past are still uncomfortable with their debt. Although one in three owners say their companies have less debt now than a year ago, many small businesses are finding it difficult to reduce their debt.

This may help explain why so many bankers argue that there is a lack of small-business loan demand on the part of many qualified borrowers, even when owner optimism is at its best level since July 2008. Over the past four years, many small-business owners have seen how having too much debt -- overleveraging -- has put companies out of business as the operating environment became difficult and lenders pulled back on their funding. Many owners don't want to expose their business' survival to the future funding decisions of bankers and regulators.

More worrisome, one in five small-business owners who have borrowed in the past cannot get all the credit they need. And, three in four of these say it is hurting their business. These are likely the owners who are voicing their concerns about a lack of credit availability for the nation's small businesses.

It is unclear whether weak business conditions and more stringent underwriting requirements have rightfully reduced the credit available to many of these small businesses, or whether some of today's underwriting standards remain too difficult -- reflecting the fallout of the financial crisis. Regardless, as long as one in five small businesses that have used credit are under such duress, it will be difficult for the U.S. economy to gain substantial positive economic momentum.

About the Wells-Fargo Small Business Index

Since August 2003, the Wells Fargo/Gallup Small Business Index has surveyed small-business owners on current and future perceptions of their business financial situation.