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Study explores companies' credit use

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A study released this summer by the U.S. Small Business Administration’s Office of Advocacy studies how small businesses use credit in their operations.

The study compares leveraged firms, or those that use credit, with those that do not.
The findings show that of the small businesses that use credit, bank and trade credit are the two types primarily used, with many small firms using both types simultaneously.

“Access to credit is one of the most important issues facing small business today” said Acting Chief Counsel for Advocacy Susan Walthall in a news release. “A study that provides a better understanding of the credit used by small business is invaluable to policymakers, small business and their suppliers.”

The study finds that small firms that use no credit are significantly smaller, more profitable, more liquid, and have better credit quality, although they tend to hold fewer tangible assets. Not only are the firms that use credit larger, the study also found that the amount of credit used as a percentage of assets is positively related to a company’s liquidity, although the firms that use credit tend to have lower credit scores.

Companies’ use of credit varies by industry, with firms using no credit found primarily in the service sector or wholesale and retail trade. Bank borrowing and trade credit is found more often in the manufacturing and construction sectors, the release said.

SBA’s Office of Advocacy is an independent voice for small businesses within the federal government, with a chief counsel of advocacy who is appointed by the president.[[In-content Ad]]

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