1. ONE COUNTRY
TWO ECONOMIES
Bill Dunkelberg, Chief Economist – NFIB
William J. Dennis, Jr., Pinch Hitter – NFIB
Richmond Fed Credit Markets Symposium
April, 2013
Charlotte, NC

2. A Bifurcated Economy
GDP Growth Tepid while
Stock Market near Record High
Corporate Profits near Record High
Unemployment Rate at 7.6%
[ 0% + 4%] / 2 = 2% Growth

3. Small Business Optimism Index
(Quarterly, 1986 = 100)
Source: NFIB Research Foundation
110
105
100
95
90
85
Seasonally Adjusted
80

4. Small Business Economic Trends

5. Outlook for Business Expansion
(Pct. “Now Is a Good Time”)
30 “NO” for 20 Quarters
25
Percent of Firms
20
15
10
5
0
79
88
91
94
97
6
76
82
85
'0 0
'03
'0 9
'1 2
'0

6. “Not a Good” Time to Expand
DUE TO ________
Political Economic Costs
90
80
70
Percent of Firms
60
50 As Pct. Saying “Not a Good Time”
40
30
20
10
0
'01 '04 '0 7 '10 '1 3
Source: NFIB Research Foundation

7. Reported Change in Past Sales
(Last Three Months vs. Prior Three)
30
20
Recession Ends
10
Percent of Firms
0
-10
-20
-30
[Pct. "Higher" - Pct. "Lower", Seas. Adj.]
-40
85
88
94
97
76
79
82
91
'00
'03
'06
'09
'12
Source: NFIB Research Foundation

8. Earnings Trends -
Pct. “Higher” – Pct. “Lower”
0
-10
Percent of Firms
-20
-30
-40
-50
0
3
6
9
2
76
79
82
85
88
91
94
97
'0
'0
'0
'0
'1

9. Planned Capital Outlays
(Next Three to Six Months)
45
Source: NFIB Research Foundation
40
Percent of Firms
35
30
25
20
15
1
4
3
7
0
77
83
86
89
92
95
80
98
'0
'0
'0
'1
'1

10. INVENTORY INVESTMENT PLANS
[% PLAN INCREASE – % PLAN DECREASE]
15
Source: NFIB Research Foundation
10
Percent of Firms
5
0
-5
-10
-15
0
3
6
9
2
76
79
82
85
88
94
91
97
'1
'0
'0
'0
'0

11. Job Openings -
(Pct. with at Least One Unfilled Opening)
40
35
30
25
20
15
10
5 0
3
6
9
2
76
79
82
85
94
88
91
97
'0
'0
'0
'0
'1

12. Net Percent Raising Prices
80
60
Pct. Increase Minus
Percent Decrease
Percent ofFirms
40
20
0
3
9
0
6
2
76
79
82
85
88
91
94
-20 97
'0
'0
'0
'0
'1
Source: NFIB Research Foundation
-40

13. Tepid Small Business Recovery
A Function of: ?
1.Credit Supply
2.Credit Demand
3.Both
4.Neither

14. Single Most Important Problem
Source: NFIB Research Foundation
45
40
35
Inflation Credit/Interest
Percent of Firms
30
25
20
15
10
5
0
76
79
82
85
88
91
94
97
'00
'03
'06
'09
'12

15. Single Most Important Small Business Problem:
2000 – 2013 (monthly)
Source: NFIB Research Foundation

16. Most Important Problems
Prob.
Rank Problem – Aug. 2012
1. Rising Health Care Costs
2. Uncertainty Over Economic Conditions
3. Energy Costs
4. Uncertainty Over Government Actions
5. Cost of Regulations and Red Tape
6. Taxes on Business Income
14. Poor Earnings
26. Poor Sales
32. Locating Qualified Employees
56. Securing Long Term Financing

17. Regular Borrowing Activity
(At Least Once a Quarter)
Source: NFIB Research Foundation

18. Loan Demand Weakens Through
the Recession Source: NFIB Research Foundation
55
Recession Starts
50
Pct. – Not Wanting a Loan
45
m
o
n
P
e
F
c
s
r
t
f
i
40
35

19. Business Loans (Origination) under $1 Million
from Commercial Banks: 1996 – 2011*
*Represents approximately 80 percent of such loans.
Source: Community Reinvestment Act data, Federal Financial Examination Council

20. Outstanding Small C&I and RE Loans by
Number and Dollar Volume: 1995-2012(p)
Source: Call Reports, FDIC

21. More/Less in Competition for
Small Businesses Banking Business
Source: NFIB Research Foundation Selected Year

22. Logistic Regression Results Contrasting Credit
Applicants and Non-Applicants; 2009 – 2011
Variables B S.E. Wald df Sig. Exp(B)
New Bus. (< 4 yrs.) -.514 .146 12.425 1 .000 .598
Employees (log) -.399 .056 50.441 1 .000 .671
Construction -.308 .155 3.957 1 .047 .735
Professional Services .148 .116 1.616 1 .204 1.160
Owner Sex - Male .383 .101 14.362 1 .000 1.467
Unencumbered RE .387 .058 43.736 1 .000 1.472
Second Mortgage(s) -.186 .116 2.567 1 .109 .830
“Under Water” RE -.439 .129 11.513 1 .001 .645
Credit Score .007 .002 17.105 1 .000 1.007
Big Bank Customer .020 .094 .046 1 .830 1.020
State RE Economy -.060 .049 1.512 1 .219 .942
Constant -.417 .153 7.457 1 .006 .659
Applicant = 0, Non = 1; n = 2107; -2 Log likelihood = 2701.967; Cox &Snell R 2 = .084; Nagelkerke R2 = .115

23. Logistic Regression Results Contrasting Accepted
and Rejected Borrowers; 2009 – 2011
Variables B S.E. Wald df Sig. Exp(B)
New Bus. (< 4 yrs.) -.095 .178 .287 1 .592 .909
Employees (log) .066 .068 .945 1 .331 1.069
Construction .372 .210 .287 1 .076 1.451
Professional Services -.257 .169 2.311 1 .128 .773
Owner Sex - Male .107 .155 .477 1 .490 1.113
Unencumbered RE .328 .099 10.839 1 .001 1.388
Second Mortgage(s) -.597 .149 16.015 1 .000 .550
“Under Water” RE -.560 .157 12.714 1 .000 .571
Credit Score .014 .002 38.568 1 .000 1.014
Big Bank Customer -.517 .134 15.011 1 .000 .596
State RE Economy .204 .070 8.480 1 .004 1.227
Constant -.347 .211 2.715 1 .099 .707
Accept = 1, Reject = 0; n = 1231; - 2 Log likelihood = 1344.014; Cox &Snell R 2 = .144; Nagelkerke R2 = .193

24. Credit Approval and Discouraged Borrowers
in States Grouped by Residential Mortgages
with Negative Equity
Credit Approval High Negative Eq. Med. Negative Low Negative Eq. All States
Eq.
Accepted 43% 59% 63% 56%
Rejected 57 41 37 44
N 321 840 249 1410
Not Borrowing High Negative Eq. Med. Negative Low Negative Eq. All States
Eq.
Non-Borrower 84% 84% 89% 85%
Discouraged
Borrower 16 16 11 15
N 229 544 170 943
Source: NFIB Research Foundation

25. Small-Employer-Owned Real Estate by Selected
Real Estate Finance Characteristics – 2010
Residential Business1 Investment All Real Estate
Characteristic Total2 Own3 Mort.4 Total2 Own3 Mort.4 Total2 Own3 Mort.4 Total2 Own3 Mort.4
Own 94% 36% 37% 95%
1st Mortgage 61 65% 19 63% 18 49% 68 71%
2nd Mortgage 16 17 26% 1 4 7% 2 5 9% 17 18 25%
Upside-Down 6 7 10 1 4 6 3 8 15 8 9 12
Mort. For
Bus. Purposes 15 16 24 2 9 20 2 5 9 17 18 21
Used as Collateral 7 7 11 4 19 30 2 6 12 11 11 16
N 734 693 457 734 324 198 734 310 166 734 708 537
Source : “Small Business and Credit Access,” NFIB Research Foundation, January 2011.
1
Businesses operating primarily from the home are included in residential only.
2
As a percentage of the small employer population.
3
As a percentage of small employers owning that type of real estate.
4
As a percentage of small employers with that type of real estate mortgaged.

26. Summary
• Small business is recovering hesitantly.
• Great uncertainty exists.
• Small business problems associated most often
with uncertainty, taxes, and regulation.
• Sales problem remains, but is declining.
• Credit has been primarily a demand issue.
• Real estate has played an enormous and under-
appreciated role in small business problems.