More Small Dealerships Seek Higher Credit Lines

NORTHFIELD, Ill. — A recent poll by the Small Business Research Board indicates that more dealers are seeking to increase their lines of credit this year, with almost one-third saying they expect to ask their principal lenders to raise loan limits.

Asking owners and managers of smaller dealerships about the credit environment, the SBRB found that while dealers characterize their current relationships with lenders as mostly good or excellent, they are being challenged by loan rates and stricter covenants.

"Of the owners and managers responding to the nationwide SBRB poll co-sponsored by Business Today, 31.1 percent said they will request an increase in their line of credit during the next 12 months. Another 15.3 percent said they would decrease their credit needs, and 53.3 percent said their needs would be unchanged from 2007," officials reported.

"On an unadjusted basis, 23.2 percent of the respondents increased their credit limit in 2007, while 12.5 percent decreased their loan levels," executives highlighted. "Another 44.6 percent said their 2007 limits were the same as in 2006. The remaining 19.6 percent said they did not have a line of credit or any loans in 2007."

On an adjusted basis, not counting dealers who did not have a loan, the SBRB discovered that 29 percent increased their credit limit in 2007, while 15.5 percent decreased their loan levels and 55.5 percent held steady from the prior year.

Moreover, during 2007, more than 62.8 percent of dealers felt that access to credit was unchanged from the previous 12 months, while 27.9 percent said it was more accessible.

Another 7 percent reported that access to credit was more difficult, while the remaining 2.3 percent described their ability to attain credit as impossible.

"The nationwide SBRB/Business Today Small Business Lending Relationship and Loan Requirements Study found 56.4 percent of the auto and vehicle dealers enjoy an excellent relationship with their principal lenders, and 29.1 percent have a good relationship," officials said.

The SBRB/Business Today study also said that 81.5 percent of the dealers' relationships with current principal lenders have lasted at least five years, with 53.7 percent lasting 10 years or more.

Continuing on, the study found that none of the respondents were in their first year with their current lead lender. However, 1.9 percent said their relationship is in the second year.

"Of these same respondents, 67.5 percent said they were with their previous key resource for five years or longer before making a change, with 47.5 percent of those lasting 10 or more years. Conversely, 12.5 percent of the respondents said they were with their previous lender for two years or fewer," according to the SBRB.

Additionally, the study discovered that 33.9 percent of dealerships have relationships with one lender, whereas 23.2 percent have relationships with two lenders.

The remaining number of those questioned indicated that they have concurrent relationships with three or more lenders.

Questions about the quality of the relationships only pertained to principal lenders, officials noted.

About 44.6 percent of those questioned said their principal lending relationship is with a local bank, 12.5 percent said the relationship is with a regional bank and 28.6 percent said the relationship is with a national bank.

The study also found that among owners and managers of smaller dealerships that:

—50 percent use their residence as collateral.

—23.4 percent contend higher loan rate are having the most significant impact on their business, while 17.2 percent cited stricter covenants. 

—Greater expense to attain a loan was mentioned by 15.6 percent of the respondents.

—More pressure for personal guarantees and increased covenants were also among the top five most significant factors.

This is the eleventh and final report from the SBRB/Business Today examining small business lending relationships and loan needs.

Key findings in the previous reports studied the trends of all small businesses throughout the U.S. and found that:

—26.8 percent of all respondents will raise their loan requests in 2008 for an increase of 3.5 points from the 23.3 percent of the small business that elevated their loan levels in 2007.

—Of those business owners using their home as collateral, 42.4 percent said their lenders had amended their borrowing levels with two-thirds (66.7 percent) of the respondents receiving higher credit ceilings and the balance receiving lower credit limits.

—Higher loan rates and increasing pressure to provide personal guarantees are the two greatest factors impacting the relationship of small businesses with lenders.

For more information about the poll, results of previous studies or other matters related to the SBRB, Raymond Minkus at (847) 441-4192.

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