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Auto Dealers Predict Modest Increase in 2008 Credit Needs, Study Says

January 28, 2008

Northfield, Ill. — More small auto and other vehicle dealers participating in a Small Business Research Board (SBRB) poll will seek increases in their lines of credit during 2008, with nearly one-third planning to ask their principal lender to raise their loan limits.

The SBRB study of owners and managers of small auto and vehicle dealerships also indicated that while their relationships with lenders are mostly "good" or "excellent," they are being challenged by loan rates and stricter covenants.

Of the owners and managers responding to the nationwide SBRB poll, co-sponsored by Business Today, 31.1 percent said they will request an increase in their line of credit during the next 12 months. Another 15.3 percent said they would decrease their credit needs and 53.3 percent said their needs would be unchanged from 2007.

On an unadjusted basis, 23.2 percent of the respondents increased their credit limit in 2007 while 12.5 percent decreased their loan levels. Another 44.6 percent said their 2007 limits were the same as in 2006. The remaining 19.6 percent said they did not have a line of credit nor any loans in 2007.

On an adjusted basis, removing those who indicated they didn't have a loan, 29 percent of the respondents increased their credit limit in 2007 while 15.5 percent decreased their loan levels and 55.5 percent held steady from the prior year.

During 2007, more than 62.8 percent of the participants felt that access to credit was unchanged from the previous 12 months while 27.9 percent said it was "easier." Another 7 percent reported access to credit was "more difficult" and the remaining 2.3 percent described their ability to attain credit as "impossible."

The nationwide SBRB / Business Today Small Business Lending Relationship and Loan Requirements Study found 56.4 percent of the auto and vehicle dealers enjoy an "excellent" relationship with their principal lenders and 29.1 percent have a "good" relationship.

The SBRB / Business Today study also indicated that 81.5 percent of the relationships with their current principal lender have lasted at least five years, with 53.7 percent lasting 10 years or more. According to the report, none of the respondents were in their first year with their current lead lender while another 1.9 percent said their relationship is in the second year.

Of these same respondents, 67.5 percent said they were with their previous key resource for five years or longer before making a change, with 47.5 percent of those lasting 10 or more years. Conversely, 12.5 percent of the respondents said they were with their previous lender for two years or fewer.

The study indicated that 33.9 percent of the owners or managers said their businesses have a relationship with one lender and 23.2 percent have a relationship with two lenders. The remainder have concurrent relationships with three or more lenders. Questions about the quality of the relationships only pertained to the principal lenders.

Additionally, 44.6 percent of the respondents said their principal lending relationship is with a local bank, 12.5 percent said the relationship is with a regional bank and 28.6 percent said the relationship is with a national bank.

The study also found that among owners and managers of small auto and other vehicle dealers that:

* 50 percent use their residence as collateral;

* 23.4 percent of those responding to study contend higher loan rates are having the most significant impact on their business while 17.2 percent cited stricter covenants. Greater expense to attain a loan was mentioned by 15.6 percent of the respondents. More pressure for personal guarantees and increased covenants also were among the top five most significant factors.

The SBRB report solely focused on examining issues related to small businesses and their relationship with lenders.

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