Small Business and Credit: How Small Business Uses Bank Credit, Trade Credit or No Credit
"Today the Office of Advocacy released a study examining the type of credit utilized by small business. Bank Credit, Trade Credit or No Credit: Evidence from the Surveys of Small Business Finances, by Rebel A. Cole, compares firms that use credit (leveraged) with those that do not (unleveraged). The study also looks at which kind of credit leveraged firms use–bank credit (loans or lines of credit) trade credit (from suppliers) or both. The study found that the two types of credit (bank credit and trade credit) used by small firms are complements, with many small firms using both types of credit simultaneously.

“Access to credit is one of the most important issues facing small business today” said Acting Chief Counsel for Advocacy Susan Walthall. “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; yet they hold fewer tangible assets. The study also finds that those firms that use credit are larger, and the amount of credit used as a percentage of assets is positively related to the firm’s liquidity. In addition, three-fifths of the small firms that use credit use trade credit..."
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