As signs of economic recovery increase, a key question is whether businesses have access to enough credit to finance growth. It's an issue of surprisingly intense debate.
On one side, some analysts contend that banks, skittish after the blow-ups of Enron Corp., Global Crossing Ltd. and other major borrowers, are denying loans to worthy companies, as they did a decade ago in a credit crunch that helped keep U.S. growth stunted in 1991 and '92.
"Small-business borrowers are paying for the sins" of large, troubled firms, especially those in the telecom sector, said John Rutledge, an economist who heads a Greenwich, Conn., buyout firm.
In a stinging report last week for the National Assn. of Manufacturers, Rutledge described a two-tier economic recovery, with giant firms still able to borrow at decent rates via bond offerings, while many smaller companies, dependent on banks for expansion capital, endure higher interest rates, special fees and outright denial of access to credit.
In a survey last month, 34% of the manufacturing group's members said credit was tighter than a year ago, and 26% said that was restricting their expansion.
Association President Jerry Jasinowski urged banks to "not strangle the economic recovery in its cradle."
For the overall economy, however, the picture appears far brighter. Counting three major sources of credit--bank loans, short-term notes known as commercial paper and long-term bonds--U.S. businesses have had substantially more access to credit during this economic downturn than in the last three recessions, the Federal Deposit Insurance Corp. reported last month.
Many smaller businesses, particularly in non-manufacturing sectors, said they have no funding worries. A January survey by the National Federation of Independent Business found plenty of firms talking of expansion, with bank loan rates averaging a low 7.2%.
Credit availability was cited as the "most important" issue by 2% of the federation's 600,000 members.
"There's tons of money available," said William C. Dunkelberg, chief economist for the group, in which manufacturers make up only about 10% of the members. Dunkelberg's index of small-business optimism rose from 100.4 in December to 103.5 in January--the highest reading since the first quarter of 2000, when economic growth still was strong.
To measure businesses' access to credit, analysts focus on three major sources of money. Here's a look at the trends in each credit sector:
