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National Workforce Assistance Collaborative

DEMAND FOR TRAINING LOANS

BACKGROUND

Investments in training have long been considered a means for

promoting individual, corporate, and national economic well-being

and prosperity. The returns from education and training to

individuals include increased income, greater employment security,

and higher job satisfaction. Benefits to employers include both

greater productivity and increased worker loyalty. As companies and

workers benefit, so does the nation as a whole, with training

bringing productivity growth for the nation and higher standards of

living for its residents.

Despite well-documented research supporting these returns from

training, many businesses under invest in it. Companies might under

invest in training for a variety of reasons, including:

* They have to pay for training out of their current accounts,

but can only expect to reap the returns from training over

time (and even then, the returns from training are difficult

to measure).

* They lack information about their training needs.

* They lack information about how and where to access

training resources.

* They are worried that the employees they train will be

hired away by other firms.

While a number of programs exist to help overcome the last three

barriers to company investments in training, little is available to

help companies with the first one.

One frequently-mentioned solution for helping companies pay for the

costs of training over the same time horizon they reap the returns,

is making training loans available. While state-based legislative

initiatives and existing programs can serve as potential models for

the design of such a loan program, there is little information

available on the demand side. The Department of Labor asked the

National Workforce Assistance Collaborative to conduct a quick-

response, fax-back survey to determine whether companies,

particularly those that are small and mid-sized, would have an

interest in such loans, and to gather other information that would

begin to characterize the demand side.

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SURVEY

We began by conducting a literature review to ascertain what is

known about the demand for training, particularly among small and

mid-sized firms. Based on this review, we developed a fax-back

survey. A copy of this survey is included as an appendix to this

report.

The Companies

The Collaborative mailed surveys to 1,400 companies that had elected

to associate themselves with the National Workforce Assistance

Collaborative and/or the National Alliance of Business. Because of

this self-selection, companies in our sample are probably more

inclined to be interested in training than the general population of

companies in the U.S.

The Collaborative received 128 survey responses (a 9.15 percent

response rate). The vast majority (80.5 percent) of survey

respondents were from small and mid-sized companies: 55 (43

percent) from companies with fewer than 100 employees, 48 (37.6

percent) from companies with 100 to 500 employees. The 80.5 percent

small and mid-sized companies among survey respondents is quite

comparable to the 78 percent that exists in the total population.

Survey respondents do not currently spend much money on training

their employees. Fifty-four percent spend less than 1 percent of

payroll on training, and 45 percent spend between 1 and 3 percent;

less than 1 percent spend over 3 percent of payroll on training.

Not surprisingly, the smaller companies spend less on training than

the larger ones. Averaging the figures suggests that respondents

spend, on average, 1.2 percent of their payrolls on training. The

national average is about 1.4 percent, close to our 1.2 percent

calculation.

The Findings

Only 24 percent of respondents said they would be willing to take

out a loan to increase their investments in training, though smaller

companies were more willing to take out a loan than larger ones.

Despite the relatively small interest in loans, a majority (54

percent) of the respondents indicated that funding was a primary or

significant factor in determining the size and scope of their

training programs; only 46 percent said funding was a minor factor

or not a factor at all.

The primary reason companies gave for not wanting to take out a loan

was that they did "not believe in loans for training" (76 percent).

Another 14 percent said that they had an adequate supply of skilled

labor, and 6 percent said they lacked information on their training

needs. The remaining 4 percent attributed their disinterest to

either a lack of information on training providers, a fear of losing

trained employees, or "other." Smaller companies were a little more

likely to attribute their disinterest to a lack of information on

needs or training providers than were larger companies. None of the

companies said their disinterest was because they did not believe

that training pays.

The findings from our survey are similar to those from a 1994 Price

Waterhouse survey asking companies that did not provide training why

they did not. Forty-seven percent of these companies indicated that

they had access to an adequate supply of skilled labor, 42 percent

said they lacked adequate funds, and 25 percent said they needed

more information about training. Smaller companies were more likely

to note a lack of funds than were larger companies.

Loan Terms. Those willing to take out loans required favorable

terms. Sixty-four percent said that the rate would have to be less

than the prime, and 72 percent wanted at least a two-year pay-back

period. Smaller companies tended to require more favorable terms

than larger ones.

Loan Size. There was great variability in the size of loans

companies would want, with 44 percent interested in borrowing over

$35,000, and another 48 percent interested in $20,000 or less, with

the variation attributable to the size of firms. Not surprisingly,

larger companies required larger loans than smaller companies.

Loan Purpose. The largest percentage of companies interested in

loans (66 percent) wanted to expand their training programs,

offering new types of training and/or training more employees.

Thirty-eight percent of those interested in loans wanted to maintain

or reengineer their current training programs. Only 17 percent

would use loans to start training programs. Smaller companies were

more likely to need loans to start training programs than were

larger ones.

************************************************************

* COSTS COMPANIES NEED LOANS TO COVER *

* *

* Costs Percentage of Companies *

* > Purchase of training equipment/software 62% *

* > Employee salaries during training 52% *

* > Costs of any external training provider 48% *

* > Purchase of equipment plus training on use of *

* the equipment 45% *

* > Costs of accredited external training provider 45% *

* > Development of a training plan 41% *

* > Training needs assessment 38% *

* > Salaries for in-house trainers 31% *

* > Work restructuring plus training to support new *

* structures/processes 28% *

* > Training evaluation 21% *

* > Administration of a structured training program 17% *

* > Travel to and from external training 14% *

* > Development & participation in training consortia 14% *

* > Benchmarking 7% *

* *

************************************************************

Loan Services. Companies interested in loans needed the loans to

cover a variety of services in order for them to be useful (see

chart). The most critical needs were the purchase of training

equipment or software and employee salaries during training, while

the least critical were benchmarking, development and participation

in training consortia, and travel to and from external training.

Larger companies were more interested in purchasing training

equipment and software than were smaller companies, and they were

also interested in purchasing equipment plus training on using the

equipment. Smaller companies were more interested in covering

employee salaries during training than were larger companies, and

they were also interested in covering the costs of any external

training provider and developing a training plan. A majority of the

companies with between 100 and 500 employees also needed training

loans to cover the costs of accredited external training providers

and training evaluations.

Conclusion

While 54 percent of companies said funding was a primary or

significant factor in determining the size and scope of their

training programs, only 24 percent were interested in taking out a

loan to increase their training investments. This demand is small,

but significant. The government might have to guarantee or

subsidize loans in order to ensure that the loan terms met company

requirements, and the loans would need to cover a variety of

training-related activities in order to meet company needs.

Training loans would have a greater impact on the amount of training

companies provided than on the number of companies providing

training. Because the largest percentage of companies uninterested

in loans indicated that they did "not believe in loans for

training," there seems little the government could do markedly to

increase company interest in training loans, though it may be

possible to change this belief by undertaking a campaign to raise

companies' awareness about the returns to training.

Further insights into companies' interest in training loans might be

obtained by examining state training loan programs.

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National Workforce Assistance Collaborative

FAX-BACK Form

FAX TO: Stephen Mitchell FROM: Name:________________________

National Alliance of Title:_______________________

Business Company:_____________________

202/289-1303 Address:_____________________

MitchellS@NAB.COM E-Mail Address:______________

Phone number:________________

Fax number:__________________

The National Alliance of Business is investigating interest among

small and mid-sized businesses in loans to fund employee training.

Please take a couple of minutes to fill out this one-page form and

fax it to us at 202/289-1303.

1. Number of employees in your company:

___ Less than 20

___ 20-100

___ 100-250

___ 250-500

___ Over 500

2. To what degree is availability of funding a factor in

determining the size and scope of your training program?

___ Primary factor

___ Significant factor

___ Minor factor

___ Not a factor

3. Would your company take out a loan to increase its investment in

training? ___ Yes ___ No

4. If yes, what is the highest interest rate a training loan could

have and still be worthwhile to your company?

___ Less than the prime rate

___ Prime rate

___ Prime rate plus less than 2%

___ Prime rate plus more than 2%

5. If yes, what is the shortest pay-back period a training loan

could have and still be worthwhile to your company?

___ 12 months

___ 18 months

___ 24 months

___ 36 months

___ Over 36 months

6. If yes, what is the maximum loan amount your company would seek?

___ Less than $5,000

___ $5-10,000

___ $10-20,000

___ $20-35,000

___ Over $35,000

7. If your company were to obtain a loan for workforce training,

how would your company use the money?

___ Start a training program

___ Maintain current training program

___ Reengineer current training program

___ Expand training by offering new types of training

___ Expand program by training more employees

8. Which of the following costs would a training loan have to cover

for your company to take out a loan (check all that apply)?

___ Training needs assessment

___ Development of a training plan

___ Salaries for in-house trainers

___ Costs of any external training provider

___ Travel to and from external training

___ Costs of accredited external training provider

___ Purchase of training equipment/software

___ Development and participation in training consortia

___ Employee salaries during training

___ Administration of a structured training program

___ Benchmarking

___ Purchase of equipment plus training on use of the equipment

___ Training evaluation

___ Work restructuring plus training to support new

structures/processes

9. If you would not take out a loan for training, is it because you

(check the most important reason):

___ Do not believe in loans for training

___ Do not believe training pays

___ Lack information on your training needs

___ Lack information on training providers

___ Have an adequate supply of skilled labor

___ Fear losing trained employees

10. Approximately what percentage of your company's total

payroll was devoted to training last year?

___ Less than .5%

___ 5-1%

___ 1-2%

___ 2-3%

___ Over 3%

Thank you for your assistance.

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FAX-BACK SURVEY RESULTS

1. Number of employees in your company:

# of Employees Percentage

---------------------------

Less than 20 9%

20-100 34%

100-250 31%

250-500 6%

Over 500 20%

2. To what degree is availability of funding a factor in

determining the size and scope of your training program?

Importance of Funding Percentage

----------------------------------

Primary factor 7%

Significant factor 47%

Minor factor 23%

Not a factor 23%

3. Would your company take out a loan to increase its investment in

training?

Interested in a Loan Percentage

----------------------------------

Yes 24%

No 76%

4. If yes, what is the highest interest rate a training loan

could have and still be worthwhile to your company?

Interest Rate Percentage

----------------------------------------

Less than the prime rate 64%

Prime rate 28%

Prime rate plus less than 2% 8%

Prime rate plus more than 2% 0%

5. If yes, what is the shortest pay-back period a training

loan could have and still be worthwhile to your company?

Payback Period Percentage

---------------------------

12 months 12%

18 months 16%

24 months 36%

36 months 28%

Over 36 months 8%

6. If yes, what is the maximum loan amount your company would seek?

Loan Amount Percentage

--------------------------------

Less than $5,000 8%

$5 to 10,000 28%

$10 to 20,000 12%

$20 to 35,000 8%

Over $35,000 44%

7. If your company were to obtain a loan for workforce training,

how would your company use the money?

Loan Purpose Percentage

--------------------------------------

Start a training program 17%

Maintain or reengineer

current training program 38%

Expand training by offering

new types of training or

training more employees 66%

Note: Numbers total more than 100% because respondents could

select more than one response.

8. Which of the following costs would a training loan have to

cover for your company to take out a loan (check all that

apply)?

Loan Services Percentage

--------------------------------------------

Training needs assessment 38%

Salaries for in-house trainers 31%

Travel to and from external

training 14%

Purchase of training

equipment/software 62%

Employee salaries during

training 52%

Benchmarking 7%

Training evaluation 21%

Development of a training

plan 41%

Costs of any external training

provider 48%

Costs of accredited external

training provider 45%

Development and participation

in training consortia 14%

Administration of a structured

training program 17%

Purchase of equipment plus

training on use of the

equipment 45%

Work restructuring plus

training to support new

structures/processes 28%

Note: Numbers total more than 100% because respondents

could select more than one response.

9. If you would not take out a loan for training, is it

because you (check the most important reason):

Reason Against Loans Percentage

--------------------------------------------

Do not believe in loans for

training 76%

Do not believe training pays 0%

Lack information on your

training needs 6%

ØLack information on training

providers 1%

Have an adequate supply of

skilled labor 14%

Fear losing trained employees 1%

Other 1%

Note: Numbers total less than 100% due to rounding.

10. Approximately what percentage of your company's total

payroll was devoted to training last year?

Percent Payroll on Training Percentage

-----------------------------------------

Less than .5% 25%

.5 to 1% 29%

1 to 2% 25%

2 to 3% 21%

Over 3% 1%

Note: Numbers total more than 100% due to rounding.

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THE EFFECT OF COMPANY SIZE

The following tables show how different size companies (under 100

employees, 100-500 employees, and over 500 employees) responded to

specific survey questions. The numbers in the cells reflect the

percentage of firms in that size category responding to a particular

item.

Table 1. Funding as a factor in training

-------------------------------------------------------

|----------------------|-----------|---------|----------|

| Funding is a factor | 58% | 44% | 67% |

|----------------------|-----------|---------|----------|

| Funding not a factor | 42% | 56% | 33% |

-------------------------------------------------------

Table 2. Willingness to take out training loan

-------------------------------------------------------

|----------------------|-----------|---------|----------|

| Yes | 25% | 26% | 17% |

|----------------------|-----------|---------|----------|

| No | 75% | 74% | 83% |

-------------------------------------------------------

Table 3. Reason for not wanting to take out a training loan

-------------------------------------------------------

|----------------------|-----------|---------|----------|

| Do not believe in | 72% | 73% | 87% |

|----------------------|-----------|---------|----------|

| Lack information on | 6% | 0% | 0% |

|----------------------|-----------|---------|----------|

| Lack information on | 3% | 10% | 0% |

|----------------------|-----------|---------|----------|

| Adequate supply of | 18% | 0% | 13% |

|----------------------|-----------|---------|----------|

| Fear losing employees| 0% | 3% | 0% |

|----------------------|-----------|---------|----------|

| Other | 0% | 3% | 0% |

-------------------------------------------------------

Table 4. Maximum Loan

-------------------------------------------------------

|----------------------|-----------|---------|----------|

| Less than $5K | 15% | 0% | 0% |

|----------------------|-----------|---------|----------|

| $5-10K | 46% | 11% | 0% |

|----------------------|-----------|---------|----------|

| $10-20K | 15% | 11% | 0% |

|----------------------|-----------|---------|----------|

| $20-35K | 8% | 11% | 0% |

|----------------------|-----------|---------|----------|

| Over $35K | 15% | 68% | 100% |

-------------------------------------------------------

Table 5. Reason for Loan

-------------------------------------------------------

|----------------------|-----------|---------|----------|

| Start a Training | 31% | 8% | 0% |

|----------------------|-----------|---------|----------|

| Maintain/Reengineer | 31% | 54% | 25% |

|----------------------|-----------|---------|----------|

| Expand Training | 69% | 67% | 50% |

-------------------------------------------------------

Note: Numbers total more than 100% because respondents

could select more than one response.

Table 6. Use of Loans

-------------------------------------------------------

|----------------------|-----------|---------|----------|

| Needs assessment | 46% | 41% | 0% |

|----------------------|-----------|---------|----------|

| Training plan | 54% | 33% | 25% |

|----------------------|-----------|---------|----------|

| Pay in-house trainers| 46% | 17% | 25% |

|----------------------|-----------|---------|----------|

| Pay any external | 54% | 50% | 25% |

|----------------------|-----------|---------|----------|

| Pay accredited | 46% | 58% | 0% |

|----------------------|-----------|---------|----------|

| Pay travel | 50% | 17% | 0% |

|----------------------|-----------|---------|----------|

| Training equipment | 54% | 68% | 75% |

|----------------------|-----------|---------|----------|

| Training consortia | 23% | 0% | 25% |

|----------------------|-----------|---------|----------|

| Pay employees | 69% | 42% | 25% |

|----------------------|-----------|---------|----------|

| Program admin. | 15% | 25% | 0% |

|----------------------|-----------|---------|----------|

| Benchmarking | 0% | 17% | 0% |

|----------------------|-----------|---------|----------|

| Equipment/training | 38% | 42% | 75% |

|----------------------|-----------|---------|----------|

| Work restructuring/ | 31% | 33% | 0% |

|----------------------|-----------|---------|----------|

| Evaluation | 0% | 50% | 0% |

-------------------------------------------------------

Note: Numbers total more than 100% because respondents

could select more than one response.