Business to Business Credit to Small Firms

Following the financial crisis, total outstanding loans to businesses by commercial banks dropped off substantially. Large loans outstanding began to rebound by the third quarter of 2010 and essentially returned to their previous growth trajectory while small loans outstanding continued to decline. Anecdotal evidence suggests that firms used trade credit to smooth over cash flow problems. The current paper looks at recent trends in trade credit use by small businesses based on a recent poll done by the Credit Research Foundation. The results highlight the importance of business to business credit for small businesses. They show an increase in demand over the past year as well as a slowdown in payment that may signal a decline in the ability to pay.