BusinessWeek: January 18, 1993

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 Economic Trends

A CREDIT CRUNCH? FOR SMALL BUSINESSES, IT'S YET TO COME

Rumors of a small-business credit crunch have been vastly exaggerated, reports the National Federation of Independent Business. A new NFIB study concludes that the credit problems faced by small businesses have been mostly a normal cyclical phenomenon associated with business downturns. Credit availability usually declines during economic weakness, it notes, because investment opportunities shrink. But in recent years, availability for small business has actually been less tight overall (except for a few regions, such as New England) than it was in past recessions.

In reality, says the NFIB, "a decline in the demand for credit by small business has been misinterpreted as a restriction of supply." Because of low inflation, high profits in the mid-1980s, and the recent slowdown, many owners have felt little need or desire to borrow heavily. In fact, NFIB surveys in recent years indicate that financing woes loom relatively small in small businesses' assessments of their problems.

"The real risk of a credit crunch," says NFIB economist William Dunkelberg, "lies in the soon-to-emerge private demand for loans." Once the expansion accelerates, there will be a surge of bankable deals, which will strain the financial system. The combination of heavier regulation, nervous bankers, and rising private-sector credit demand, he warns, could then produce a "truly serious credit crunch for small business."

GENE KORETZ
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