SMBs Worry More About Sales, Real Estate than Credit

Although disrupted credit lines around the world are wreaking havoc on businesses in the midmarket space, a new study suggests small to medium-size business (SMB) owners are more concerned with falling sales than freezing credit.
The Washington, DC-based National Federation of Independent Business (NFIB) Research Foundation is a small business-oriented research and information organization and conducted a survey asking 750 employers with fewer than 250 employees what their economic concerns were.

The results show 45 percent of respondents cite slowing or lost sales as their company's most important immediate problem, 23 percent said market unpredictability was the top concern, nine percent worried most about sinking real estate values, another nine percent cite the cost and/or terms of credit, and 8.9 percent said credit access ability was their most pressing concern.

The report's author, William Dennis, says the fundamental small business problem is the poor economy, further exacerbated by the drop in real estate values and the nation's financial turmoil. "Efforts to provide additional credit, whether through encouraging bank lending or government loan guarantees, are not likely to be of much help to small business owners," he said. "Those businesses who report they can't get credit are typically unable to absorb more debt."

The survey found that about three-quarters of small business owners have at least one mortgage on real estate they own, and 22 percent have taken out at least one mortgage to finance business activities. Sixteen percent use real estate as collateral for other business assets and many are feeling the squeeze of the drop in real estate values. The study discovered one in 10 now have negative equity in at least one property. Dennis called the crisis an "economic perfect storm" for SMB owners.

Survey results say 16 percent use real estate to collateralize other business assets, including 10 percent who use their homes as collateral. About one in 10 own at least one currently upside-down property. The financial leverage homes provide businesses in a weak economy with declining real estate values is a matter of significant concern to SMB owners.  


Small business owners are heavily invested in real estate. Ninety-six percent own their personal residence, 49 percent own all or part of the building and/or land on which their business sits (which excludes one-quarter of SMB owners who operate primarily from the home), and 41 percent own investment real estate outside of their residence and business.

The report noted that real estate, particularly home mortgages, is frequently used to finance or collateralize other business assets. Seventy-six percent have at least one mortgage on the real estate they own with 13 percent having three or more mortgages, 22 percent having taken out at least one mortgage to finance business activities.

Dennis says efforts to make additional capital available to small business through directed bank lending or indirectly through government guaranteed lending is not likely to be generally helpful. "Unless there is a plan to massively subsidize those loans, firms who most often want credit and cannot now get it are high risk and typically not able to absorb additional debt with reasonable prospects of repaying it," he writes in the report. "Such action simply saves a few while condemning others to worse circumstances than they otherwise would have encountered, leaving a third party to hold the debt."

Dennis says he thinks the government should pass a recent NFIB proposal to create a six-month payroll tax holiday to stimulate the economy and generate sales for small businesses.