Small business trends captured in separate national studies

Small businesses, their relationship with banks and outlook for the economy are featured in separate studies.

The Federal Reserve Bank of Chicago in its 1997 CRA Small Business Lending Profile compares small business lending trends across low-, moderate-, mediumand upper-income neighborhoods. The Fed study found that, in contrast to national trends, the dollar value of loans in low-income neighborhoods decreased in most of the district's metropolitan statistical areas (MSAs), except Detroit, where total dollar value of small business loans was up 61%. The report also shows that, consistent with national trends, the share of loans made in district MSAs relative to share of businesses rose as overall neighborhood income increased.

The number and total dollar value of loans to small businesses increased in 1997 from 1996 in five major MSAs in the Chicago Fed districtshicago, Detroit, Des Moines, Indianapolis and Milwaukee. The only exception was in the Des Moines MSA, where the dollar value of these loans fell almost 2%. Nationally, the total number and the dollar value of small business loans experienced an overall increase.

The Fed study defined small business loans as loans of up to $1 million that are secured by nonfarm or nonresidential real estate, or are for commercial and industrial purposes.

The entire text of the Chicago Fed's small business lending profile is available on its web site at http: / /www.frbchi.org

Regional banks are expected to displace local banks as the top competitor for the small business dollar by 2004 and the next greatest threats to be national bank marketers and card giant American Express and brokerage Merrill Lynch. This is the assessment in the Consumer Bankers Association (CBA) 1999 Small Business Banking Study.

The study shows that at the same time, local and regional finance companies are expected to dramatically drop in importance.

The study identifies life insurance as the top new service that banks plan to offer small businesses, with banks indicating that they plan to offer a wide array of these products to their clients within the next 18 months.

The respondent group of banks in the CBA study represents the most comprehensive sample of the market in the study's 10-year history, according to officials. Respondents represent total assets of $2.59 trillion, capturing 50% of the nation's $5.18 trillion total domestic banking assets and 43% of the industry's small business loans.

The CBA survey was conducted for the third year by Furash & Co., Washington, D.C. It is designed to identify the internal practices and approaches that distinguish best performers in small business banking. CBA pointed out that over the last decade the small business market has been an important source of earnings and growth for most banks.

Among the survey findings: bankers continue to believe that their most important marketing tactic for both acquisition and retention is the direct sales force; bankers continue to expand the scope and types of products marketed to the small business customer base; and nearly 85% of the respondents count on branch managers to open new accounts and retain small business relationships.

The survey is available from the CBA at $175 for members and $400 for nonmembers. Information in on the CBA web site at www.cbanet.org.

A poll sponsored by the American City Business Journals found that despite being optimistic about how their companies will fare in 1999, U.S. small businesses are positioning themselves for harder times.

In a survey of 800 owners, presidents and chief executives of companies with one to 99 full-time employees, more than half of the respondents (55%) said they expect their sales to increase this year and 50% said they expect their profits to grow. However, half of the participants also said they believe a recession is very or somewhat likely to occur in 1999. And 69% reported they have cut back their operations or scaled back expansion plans due to concerns about the economy.

The respondents noted that the tight labor market is now the leading concern, with more than half (55%) of the companies surveyed indicating they are having difficulty retaining and recruiting employees. Nearly one-quarter (23%) said a shortage of qualified employees is the biggest problem facing their companies.

Few small business operators expect the labor shortage to improve anytime soon.

Small business operators feel better about the direction of the economy in their regions than they do about the U.S. economy. The economic conditions in their regions will improve or remain the same this year, according to 79% of the survey participants. The full text of a report on this survey is on the Internet at www.amcity.com/madway/survey_1999.