Credit Availability Exceeds Demand

Credit availability for Connecticut businesses hit a two-year high in the fourth quarter of 2012 according to a new survey released today.
However, credit demand — a key indicator of economic growth — remained weak for a fifth consecutive quarter, as businesses postponed near-term plans for expansion, curtailed investment in inventories, and tempered new hiring.
The Fourth Quarter 2012 CBIA/Farmington Bank Credit Availability Survey showed only 26% of surveyed businesses sought financing in the fourth quarter.
“The unwillingness of businesses to invest is a reflection of the uncertainty with both the state and national economies,” CBIA economist Peter Gioia said.
“The fiscal cliff debate and the consequences of healthcare reform continue to undermine business confidence.”
Using financing
Of those who sought financing, 54% were seeking less than $100,000, while 22% wanted between $100,000 and $500,000.
Only 9% of respondents sought financing in excess of $1 million, representing a lesser percentage seen relative to other recent surveys.
Almost half (46%) said they would use financing to invest in new plant and equipment, while 19% planned expansion into new stores, branches, or operations. About one in five (19%) wanted financing to maintain their current workforce.
“Despite record low interest rates, many firms are curtailing plans for expansion until they see a tangible pickup in economic growth,” said Don Klepper-Smith, chief economist and director of research at DataCorePartners.
“That means less hiring, and running business functions on the lean side with an eye towards caution.”
Volatility eases
The Farmington Bank Credit Availability Index (FBCAI) was at 30 points in the fourth quarter, compared with 27.2 in the second quarter. That reading was about eight index points higher than the fourth quarter 2011 index of 22.5 points.
The FBCAI’s future expectations component, which measures credit availability three-to-six months from now, showed moderate improvement at 29.9 points, or three index points higher than the second quarter.
“Credit conditions remain in a primary upward trend and are demonstrating tangible improvement,” said John Patrick, president and CEO of Farmington Bank. ”This is a welcome sign after two years of considerable volatility.”
Some 13% of respondents rated current conditions as either good or excellent in the most recent survey, while 54% said they were average.
While 81% of those surveyed said credit availability was not a problem in the fourth quarter of 2012, almost three-quarters (74%) did not seek financing.
The Fourth Quarter 2012 CBIA/ Farmington Bank Credit Availability Survey was emailed to approximately 1,900 Connecticut businesses in January of 2013. A total of 187 responded, for a 10.2% response rate and a margin of error of +/- 7.3%.