Call it the uncertainty factor.
With the recession receding and indicators pointing toward recovery on the national and state levels, banks are loosening their purse strings and credit is back in the business equation.
But that news, part of a 2Q survey by the Connecticut Business and Industry Association and Farmington Bank, runs smack into another reality: Demand for credit between April and June fell 3 percent.
“That”™s really an indication of the continued uncertainty surrounding the state”™s economic recovery,” CBIA economist Peter Gioia said in a written statement upon the study”™s recent release.
Among those who took out new loans in 2Q, operating costs gobbled the biggest share of loans, 24 percent. Just 9 percent took out a loan to expand a physical footprint.
The “Second Quarter 2013 CBIA/Farmington Bank Credit Availability Survey” was emailed to about 1,900 Connecticut businesses in July. A total 171 responded, making for a 9 percent response rate and a margin of error of plus or minus 7.6 percent.
The survey revealed credit availability for businesses hit a five-year high through the first six months of the year. Demand for credit among the state”™s businesses, however, fell 3 percent from 1Q, with 26 percent of those surveyed indicating they sought financing in the April-June timeframe.
“While we”™ve seen modest gains in jobs and capital investment, that hasn”™t been of a scope we would expect from a strong, sustained recovery,” Gioia said.
The Farmington Bank Credit Availability Index (FBCAI) hit a five-year high in the second quarter, jumping 10 points from the first three months of the year to 45.2 points.
The FBCAI”™s future expectations component, which measures credit availability three-to-six months from now, improved to 43.4 points, or almost seven index points higher than the previous quarter.
“There”™s every indication that credit conditions remain in an upward trend and look to remain favorable heading into the second half of the year,” said John Patrick, president and CEO of Farmington Bank.
Some 22 percent of respondents rated current credit conditions as either good or excellent in the most recent survey, a 5 percent jump over the first quarter, while 52 percent said the credit conditions were average.
“It appears that most area businesses are securing the credit they need for long-run growth,” said Don Klepper-Smith, chief economist and director of research at DataCorePartners, the New Haven-based research firm that managed survey data. “The wild card in all of this is health care reform, which is likely to impose higher costs on Connecticut businesses, implying greater demand for credit. It will be interesting to see how this all unfolds over the next year.”
Of those who sought financing, 46 percent were seeking less than $100,000, while 38 percent sought $100,000-$500,000.
Eight percent of respondents sought financing in excess of $1 million, a one percentage point increase over the previous quarter.
About one-quarter (24 percent) said they needed financing for working capital, while 15 percent planned machinery or equipment purchases, and 9 percent wanted to expand existing plant or office space.
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