ATLANTA — Small business owners behind in their mortgagepayments are more likely to save their businesses rather than theirhomes according to a new study from Experian.

Experian compiled a sample of 2.7 million business owners andanalyzed the payment behavior of those owners with a mortgagebetween April 2007 and April 2008. The study's purpose was todetermine the impact of a severely delinquent mortgage payment on abusiness owner's personal and business credit behavior. Experiandefined severe as more than 90 days late.

Because of deteriorating equity, high mortgage payments andlimited refinancing options, business owners chose to ensure thebusiness' survival, preserving their source of income at the riskof losing their home, the findings showed.

While business owners were less likely to become severelydelinquent on their mortgages with three out of every 100 fallinginto this category, the rate of late payments decreased by 57%during the April 2007 to April 2008 time period. As many as 312,000business owners were in trouble with their home loan.

“It was one of the surprises we got from the study,” saidTorsten Gerwien, vice president of decision sciences at ExperianInformation services, on business owners choosing to save theirbusiness over their home. “We wanted to see the impact whenbusiness owners commingle their assets.”

For credit unions and other financial institutions, the findingsrevealed opportunities to build new and nurture existingrelationships with small businesses, Gerwien said. For one, thosethat are paying their business obligations faster create a windowto extend products and services, as business service usage hasgrown 50% among financial institutions. Looking at blended scores,rather than individual and business scoring, is one alternative toassess risk going forward, he added.

The study also found that after mortgage delinquency, creditusage tends to shift from personal to business. Consumer balanceoutstanding dropped nearly 50% after mortgage delinquency whilecredit utilization decreased 16%. However, on the business side,balances increased more than 50% and credit utilization alsoincreased by 11%.

Regardless of the current mortgage crisis, 60% of small businessowners were more apt to make prompt payments on their businessobligations before and after being delinquent, according to thestudy. Another 15% made slower payments, followed by 13% who paidfaster and 12% who paid slower before and after a mortgagedelinquency.

The industries that have been hit the hardest by the mortgagecrisis are understandably construction and real estate buttransportation areas have succumbed under the weight of rising oilcosts, according to the study. A slowdown in consumer spending hasalso hammered retail trade.

Meanwhile, small business owners are relying on commerciallending options more often than personal to support theirbusinesses, Experian found. Gerwien said part of that shift may betied to creditors acting to reduce risky exposure on the consumerside.

“What surprised us most is as personal credit is reduced,business credit increased,” Gerwien pointed out. “As lendersmanaged risks downward, commercial balances increased by 50%.”

“If they just look at the personal side, they may be missingopportunities. As credit unions talk to their business owners, theyshould send the message that credit is still out there andavailable [for those who make their payments on time],” Gerwiensaid.

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