More Businesses Seeking Credit To Protect Against Working Capital Crunch
September 28 2016 - 1:11PM
Business Wire
Although businesses have reported steady increases in access to
credit since 2012 and an increase in demand for credit compared to
the same time last year, small businesses are still scrambling to
secure working capital, according to the third quarter 2016 Private
Capital Access (PCA) Index report by Dun & Bradstreet and
Pepperdine Graziadio School of Business and Management.
Both small (less than $5 million in revenue) and mid-sized
($5-$100 million in revenue) businesses combined reported a 7.8
percent increase in access to capital and a 3.1 percent increase in
demand for capital year-over-year. However, about two percent more
businesses than a year ago reported seeking financing for “working
capital fluctuations” — defined as fluctuations in business funds
that are used in day-to-day trading operations and generally
considered to be a standard measure of a company’s efficiency and
economic health.
“Small businesses are getting even more access to credit, and
this correlates to continued expansion and revenue growth,” said
Jeff Stibel, Vice Chairman of Dun & Bradstreet. “These small
businesses are leaner than they were before the recession, and
typically not able to rely on the same liquid assets as larger
companies, making access to working capital critical to fuel
continued growth.”
Business concerns about a stable financial future were evident
in the 25.7 percent increase in businesses citing “worsening
financial conditions” as a reason for seeking financing, compared
to the year-ago period (35.2 percent in Q3 2016 versus 28 percent
in Q3 2015).
Concerns about cash flow were also reflected in the increasing
percentage of businesses noting that “slow accounts receivable”
were impacting their financial condition. Twenty-seven percent of
small and mid-sized businesses reported that slow
accounts receivable led to additional borrowing to sustain cash
flow. Among small businesses, 27 percent in Q3 2016 noted the need
for additional borrowing compared to 25 percent in Q3 2015, an
increase of 12 percent. Both small businesses (39 percent) and
mid-sized businesses (15 percent) reported slow accounts receivable
as a reason for slow or stopped growth in Q3 2016. In addition,
among both small and mid-sized businesses, 8.3 percent anticipated
revenue decreases in Q3 2016.
“As this research demonstrates, the health of the U.S. business
community can be viewed through multiple lenses. Increased access
to and demand for credit is a favorable metric when assessing near
and long-term costs and opportunities, but notably, businesses are
viewing the future with growing trepidation,” said Dr. Craig R.
Everett, Director of the Pepperdine Private Capital Markets
Project. “Our analysis suggests that businesses appear to be less
concerned about short-term growth and profitability than on
ensuring future liquidity.”
As companies brace for worsening financial conditions, the Q3
2016 data suggest that cash flow skittishness may be leading
businesses toward alternative financing and lending options,
including higher-risk solutions, to free up liquidity.
Increasingly, businesses reported the use of factor lending, a type
of debtor finance in which a business sells its accounts receivable
to a third party (a “factor”) at a discount (29 percent sought
factor lending in Q3 2016 versus 22 percent in Q3 2015, a 24.1
percent increase). A business will often factor its receivable
assets to meet its present and immediate cash needs.
Similarly, fewer businesses are accessing trade credit, a
financing option under which suppliers extend credit to businesses
for the purpose of buying now and paying later. More than 17
percent fewer businesses reported access to trade credit in Q3
2016, compared to Q3 2015 (57 percent in Q3 2015 versus 47 percent
in Q3 2016). Study authors hypothesized that the decrease could
correlate with a decline in business activity, or that suppliers
have tightened trade credit due to concerns about the operational
stability of trade business partners.
The PCA Index is a quarterly indicator produced by the Graziadio
School of Business and Management at Pepperdine University
with the support of Dun & Bradstreet. The Q3 2016 survey is
based on 1,888 completed responses collected July 6 – July 29,
2016.
Download the latest index data here and follow us on Twitter
at @GraziadioSchool, @DnBb2b, and @AccesstoCapital.
About Dun & Bradstreet
Dun & Bradstreet (NYSE: DNB) grows the most valuable
relationships in business. By uncovering truth and meaning from
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more about Dun & Bradstreet, visit DNB.com. Twitter: @DnBUS
About the Pepperdine Graziadio School for Business and
Management
A leader in cultivating entrepreneurship and digital
innovation, the Pepperdine Graziadio School of Business and
Management focuses on the real-world application of MBA-level
business concepts. The Graziadio School provides student-focused,
globally oriented education through part-time, full-time, and
executive MBA programs at our five Southern
California locations and Silicon Valley and Santa
Barbara campuses, as well as through online and hybrid
formats. In addition, the Graziadio School offers a variety of
master of science programs, a bachelor of science in management
degree-completion program, and the Presidents and Key Executives
MBA, as well as executive education certificate programs. Follow
the Graziadio School
on Facebook, Twitter at @GraziadioSchool,
and LinkedIn.
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version on businesswire.com: http://www.businesswire.com/news/home/20160928006341/en/
Pepperdine Graziadio School of Business and
ManagementLisa Perry,
310-568-2314lisa.perry@pepperdine.eduorDun &
BradstreetLauren Simpson,
310-919-2230simpsonl@dnb.com
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