PhillyInc: Small firms not in mood to borrow

If credit is the lifeblood of business, then the rather bloodless lending environment says quite a lot about the lackluster U.S. economy.

Two surveys of small-business owners came to similar conclusions: Most small firms aren't trying to borrow money, and many of those discouraged borrowers said they weren't applying for credit because they were afraid of being turned down.

The Federal Reserve Bank of New York said 67 percent of the business owners it surveyed did not apply for credit in the first three months of 2011. Of those, 27 percent said they didn't try because they believed their loan applications would be rejected. Other reasons owners cited for not pursuing loans were that they were paying down debt (19 percent) or already had sufficient credit (21 percent).

Still, small-business owners' reluctance to borrow is grounded in harsh reality. Many had low credit scores, insufficient collateral, and flat or declining sales, according to the New York Fed, which surveyed 876 firms in the New York metro area in April and May.

Of the 33 percent of businesses that had sought credit, two-thirds were approved by lenders, the New York Fed said. The most successful borrowers were manufacturers, while the personal-services sector (think: laundries, hair salons, and wedding planners) was the least successful.

The second survey, released Thursday by Broad Axe-based MultiFunding L.L.C., found that 73 percent of the responding businesses were in need of a loan but had not applied in the last year.

According to the business-

loan broker's Small Business Lending Survey, conducted in July, the top reasons cited by 21 percent of the 1,200 firms were "afraid of application rejection" and "working on improving my credit first."

Of those owners who did apply, two in five received only partial funding or had their applications rejected.

Multifunding chief executive officer Ami Kassar said the survey results indicate that despite their demand for loans, owners remain afraid of the loan-application process in the current economic and lending environment.

at 215-854-2980 or marmstrong@phillynews.com, or @PhillyInc on Twitter. Read his blog, "PhillyInc," at www.phillyinc.biz.