SCORE Small Business Blog

Finance: How Small Business Uses Credit

Tools For Small Businesses Using Credit

The Office of Advocacy of the Small Business Administration  is an independent voice for small business within the federal government. They recently released a study examining types of credit utilized by small business, including: bank, trade and no credits.

The study authored by Rebel A. Cole, compares firms that use credit with those that do not. The study also looks at which kinds of credit leveraged firms use: loans or lines of credit, and trade credit from suppliers.

“Access to credit is one of the most important issues facing small business today” said Acting Chief Counsel for Advocacy, Susan Walthall.

The study reinforces common knowledge that small firms that use little or no credit are significantly smaller, more profitable, more liquid and have better credit; but possess fewer tangible assets required to obtain credit. These findings certainly are not surprising or unexpected. An interesting conclusion is that of the firms studied, 60% of the small firms that use credit, use trade credit.

Businesses’ that use credit varies by industry, with firms using no credit primarily are found in the service sector or wholesale or retail trade. Bank borrowing and trade credit is used mostly in the manufacturing and construction sectors.

Another interesting finding, and I’m not sure I agree with the conclusion; is that firms that use trade credit tend to be larger, more liquid, but also have lower credit scores. Small businesses that use bank credit are are larger, younger,and less liquid; and companies that do not utilize bank or trade credits are significantly smaller, more profitable, more liquid and better credit quality.

The study raised some interesting questions and many of our readers of the blog and I would be interested in your comments as to whether the conclusions stated are in fact representative of small business.

For more information and a complete copy of the report, visit the Office of Advocacy website at:

Steve BloomChapter Chair & Business Mentor, SCORE Atlanta
Steve Bloom started several business ventures in mortgage banking, real estate development and management, importing and business consulting. He has invested in several startups and has been retained by owners to assist in “turning around” businesses. | @stevebloom | More from Steve

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