FIRMS WITH
EMPLOYEES OF:

50 OR LESS

Chart VI. AVAILABILITY OF FUNDS TO BUSINESS, 1939-1949,
BY SIZE OF BUSINESS

51 TO 100

101 TO 250

251 AND OVER

ALL FIRMS

Types of industry and the need for funds

The amount of funds needed varied considerably from one industry to another. Thirty percent of the respondents engaged in the toy, novelties, and sport-goods industry expressed a desire for additional funds. While this was the highest percent reported for any industry, the largest aggregate number (537 respondents) was found in the machinery and tools industry. According to the questionnaire returns, there was a high demand in the autos and aircraft, the electrical and electronic equipment and leather industries. More than the average demand (12 percent for all industries) was expressed by the respondents engaged in apparel and textiles, chemicals and drugs, and the plastic industries.

The lowest percent (5) was registered by the petroleum industry. Other industries in which only a small percent wanted additional funds are: optical, medical, and scientific supplies; nonferrous metals, and stone and glass industries. The breakdown by industries is shown in table 12.

85072-51-15

TABLE 12.-Need for additional funds, classification of respondents by types of

industry

The types of funds needed by industrialists who responded to the questionnaire varied considerably. Term loans were preferred by 175 respondents or 39 percent of the total manufacturers who were in need of funds. Twenty-seven percent wanted short-term or commercial loans and another 20 percent were seeking funds through mortgages or the sale of bonds. Only 12 percent expressed a preference for funds by a sale of stock. (See table 13 and chart VII.) On the basis of the number of employees (see table 14 and chart VIII) there was a large demand for both term loans and commercial loans. On the basis of amount needed there was a high concentration for term loans and commercial loans and a somewhat smaller demand for funds through the sale of bonds and mortgages. (See table 15 and chart IX.)

TABLE 14.-Types of funds preferred, by size of business

1 Does not add across to total number of respondents, due to duplications. Some respondents preferred one type of funds for one purpose and another type for another purpose.

TABLE 15.-Types of funds preferred by amount needed (percent)

The members of the association were asked to state what they believed the interest rates would be in their respective localities for various types of funds provided they could be obtained by those in need of additional funds. The rates reported ranged from one-half of 1 percent or less to 10 percent or more. Despite this ringe, there was a marked concentration of cases in the 3 to 5 percent classes, inclusive. Out of 427 replies 353 or 83 percent fell within the 3-5 percent range, inclusive. Four percent was the rate most frequently quoted. Only 23 replies quoted a rate of 2 percent or less, and 48 quoted rates ranging from 6 to 10. Three replies or one-half percent quoted a rate of 10 percent or above. For a more detailed distribution of expected interest rates, see table 16.

TABLE 16.-Expected interest rates 1-Opinions of respondents

1 The members were asked to indicate the interest rates they believed they would be asked to pay for funds in their community.

To the extent that these estimates were a true reflection of what the market would actually charge for these funds, there does not seem to be any reason for feeling that small business borrowers would have to pay an exorbitant price (rate) for their funds.

Why funds are needed

Small business firms, generally speaking, need all types of funds-some need funds for one purpose while others want funds for an entirely different reason. In general, concerns need funds (1) for working capital purposes, (2) for plant and equipment, (3) for general expansion of the business, and (4) to retire or refinance old debts.

Small concerns are generally in need of funds to maintain the inventory, to carry current accounts receivable, and for payrolls. The 395 respondents 23 who replied to the question, made 495 suggestions of which more than 230, or 47 percent, were for funds for working capital including current assets. (See table 18 and chart X.) Another 33 percent suggested funds for plant and equipment including expansion of fixed assets, and for modernization and replacement. The remaining 20 percent (approximate) wanted to expand the size of the business and to refinance old obligations.

23 Since some respondents suggested more than 1 purpose, the number of purposes (495, see table 17) given were larger than the number of respondents.