While the economy continues to inch forward, credit conditions, which had shown slight improvement at the end of last year, are backsliding, according to the first-quarter 2011 CBIA/Farmington Bank Credit Survey.

“The economic recovery is being pushed and pulled in every direction,” says CBIA Vice President and Economist Peter Gioia, “and just when consumer spending started to improve, rising oil prices began siphoning off disposable income, causing market concerns.”

Only 10 percent of business executives responding to the survey rated current conditions good or excellent, down from 14 percent last quarter.

Another 44 percent said current conditions are poor or fair, up significantly from last quarter (36 percent) but down from 50 percent one year ago.

Respondents were not overly optimistic that conditions would improve over the next three months (April-June). Only 14 percent said that credit availability going forward will get better, down from 17 percent last quarter, but up from 10 percent one year ago.

“The good news is that exports are strong and leading to increased profits for many businesses,” said Gioia. “The bad news is that gas prices now exceeding $4.00 per gallon could further slow our economic recovery—making lenders more cautious. As a result, businesses have hit a speed bump in their efforts to obtain financing.”

More than one third of respondents (39 percent) expect conditions to deteriorate. That’s up from each of the last three quarters, but down from 44 percent a year ago. Less than a quarter (21 percent) of respondents said that credit availability is a problem for their companies—the same number as last quarter and the lowest percentage in more than a year.

“It’s clear from this survey that the lingering effects of the Great Recession are still being felt in Connecticut, creating an air of caution in some areas of business lending across the state,” says John Patrick, president and CEO of Farmington Bank. “We must all work harder to get businesspeople—especially small business owners, who are the economic drivers for job growth in the state—the capital they need to grow their businesses and create jobs.”

Other key survey findings:

  • More than half of all respondents (53 percent) said that without access to capital, they have been unable to finance increased sales; half said they have been unable to grow or expand their business; and 40 percent said they have reduced their workforce.
  • Thirty-two percent of respondents used financing within the last three months.
  • Businesses said they need capital to invest in new plants and equipment (37 percent), expand operations (23 percent), hire new workers (18 percent), and increase inventory (11 percent).
  • The majority (78 percent) of businesses that received capital used traditional bank loans and lines of credit; 32 percent used credit cards; 29 percent used vendor credit; and 19 percent used private loans.

“Small businesses still face uncertain credit conditions that continue to slow their growth and diminish their ability to add jobs to the economy,” says Marie O’Brien, president of the Connecticut Development Authority (CDA).

“Economists agree that a step-up in overall economic growth in Connecticut requires more favorable credit conditions, with funds available for businesses to gain timely access to capital needed to increase inventories, hire new employees, and grow their companies.”

The CBIA/Farmington Bank Current Credit Conditions Index is 17.8, down from 27.7 last quarter. 

Business executives are not bullish on future credit conditions. The CBIA/Farmington Bank Future Expectations Index, which measures credit expectations three to six months from now, stands at 25.8—down from 35.2 last quarter. The overall CBIA/Farmington Bank Credit Availability Index also dipped—to 21.8—down from 31.5 last quarter, but up from a year ago.

The current availability index, which indicates the health of Connecticut’s credit markets, has two primary components: one that measures current conditions and one that measures expectations in the marketplace three to six months out.

                         CBIA/Farmington Bank Total Credit Availability Index    1Q11

Farmington Bank Current Credit Availability Index           17.8

Farmington Bank Future Expectations Index                      25.8

Farmington Bank Total Credit Availability Index                21.8

“It’s disappointing to see the positive momentum captured in the last quarter survey slip away,” says Don Klepper-Smith, chief economist and director of research at DataCore Partners in New Haven.  “We hope this is just a minor setback, as we’ve had other positive signs that Connecticut’s economy is rebounding and job growth is beginning to materialize.  Hopefully we can recapture some of those signs and the positive momentum seen in last quarter’s survey, but ultimately both consumer and business confidence will be key to the direction of the economy.”

The credit survey, conducted by the Connecticut Business and Industry Association (CBIA) and DataCore Partners, was sponsored by Farmington Bank and the CDA.

The survey was emailed to Connecticut businesses in March 2011. A total of 390 executives responded, for a ­­­­13 percent response rate and a margin of error of +/- 5 percent.