Small Business Credit Findings Released

May 26, 2017
By Dell Gines, Senior Community Development Advisor


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The 12 Federal Reserve Banks have issued the 2016 Small Business Credit Survey: Report on Employer Firms, which examines results of an annual survey of small business owners about the conditions and credit environment faced by business owners. This was the first national survey, roughly doubling the states represented and tripling the responses from 2015. The survey gathered experiences from businesses across 50 states and the District of Columbia through the joint efforts of the Federal Reserve Banks of Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, San Francisco and St. Louis. 

The Report on Employer Firms found that many small businesses with employees were profitable and optimistic, yet at the same time faced financial challenges, experienced funding gaps and relied on personal finances to meet the funding needs of their businesses. These issues were more pronounced for the smallest firms, which were less likely to receive necessary funding and more likely to operate by using personal finances. These findings highlight the obstacles to growth small businesses face and raise new questions about how to overcome them.

Key findings can be found in the Report on Employer Firms’ executive summary. These findings include:

Performance and Expectations

  • Similar to the 2015 survey, about half of the firms were profitable and had growing revenues. Most firms also were optimistic about the coming year, with a net 61 percent expecting revenues to grow and 39 percent anticipating job growth.
  • Changes in debt levels and expectations about future debt were modest. Thirty-four percent saw their debt levels increase in 2016 and only 19 percent expect debt levels to increase in 2017. 

Financial Challenges and Reliance on Personal Finances

  • Despite their optimism, 61 percent of firms faced financial challenges in the last year. The top challenges were accessing necessary credit (44 percent) and meeting operating expenses (36 percent).
  • The vast majority of firms addressed financial challenges by using personal finances (76 percent) before taking on additional debt (44 percent). Most also relied on the owners’ personal credit scores to obtain financing (87 percent). 

Financing Demand, Approvals and Sources

  • Similar to the results of the 2015 survey, 45 percent of firms applied for financing. 
  • Most loan applications were for small amounts, with 55 percent of firms applying for $100,000 or less in financing and 74 percent applying for $250,000 or less in financing.
  • Applicants were more likely than nonapplicants to be growing (34 percent versus 25 present) but were more likely to have experienced recent financial challenges (76 percent versus 48 percent).
  • Banks were the most common source of credit for firms, with 50 percent applying to large banks and 46 percent applying to small banks. 
  • Loans or lines of credit were the most frequently sought lending products (86 percent). Loan applicants had more success at community development financial institutions, small banks and online lenders than at large banks. 

Smaller Firms

  • “Smaller” employer small businesses (with $1 million or less in revenue) make up 70 percent of survey respondents, and their challenges and reliance on personal finances are far more pronounced than those of “larger” employer small businesses (with more than $1 million in revenue). These challenges are particularly salient for the U.S. macroeconomy, since new employer small businesses, which are typically “smaller” in their early stages, are the primary source of U.S. job growth.1  
  • Smaller firms were:
    • More likely to face financial challenges (67 percent) than larger firms (47 percent).
    • More dependent on personal finances (25 percent relied on personal finances and 48 percent relied exclusively on a personal credit score) compared to larger firms (11 percent and 25 percent, respectively).
    • More likely to face financing shortfalls, with 67 percent of applicants reporting a gap compared to 45 percent of larger firms.
    • Notably less successful at obtaining financing at large banks (45 percent success) than larger firms were (72 percent success).

Additional reports on the 2016 Small Business Credit Survey will be released throughout 2017. These will take an in-depth look into specific types of small businesses, including start-ups, minority firms and microbusinesses. 

About the Small Business Credit Survey (Survey)

The Survey collects information about business performance, financing needs and choices and borrowing experiences of firms with 500 or fewer employees. Responses to the Survey provide insight into the dynamics behind aggregate lending trends and noteworthy segments of small businesses. The results are weighted to reflect the full population of small businesses. The Survey is not a random sample; results should be analyzed with awareness of potential methodological biases.

The Survey, launched in 2014, merged the regional surveys conducted by several Federal Reserve Banks. The 2016 Survey is the first conducted on a national scale with involvement from all 12 Federal Reserve Banks and input from all 50 states. The 2016 Survey collected 15,991 responses, 10,303 of which were from employer firms.

How You Can Participate

The Federal Reserve Banks deliver this survey through their small business support provider partners. If you are a Chamber of Commerce, Small Business Development Center, Micro-Lender or another type of organization that supports local small businesses, your help would be invaluable as we conduct the 2017 survey.  If you would like to participate please contact:

Dell Gines
Senior Community Development Advisor
Federal Reserve Bank of Kansas City
Dell.gines@kc.frb.org
402-221-5606

 

1 See Haltiwanger, John, Ron S. Jarmin and Javier Miranda. 2013. “Who Creates Jobs? Small Versus Large Versus Young,” The Review of Economics and Statistics, vol. 95, no. 2, pp. 347-361. See also Robb, Alicia, E.J. Reedy, Janice Ballou, David DesRoches, Frank Potter and Zhanyun Zhao. 2010. “An Overview of the Kauffman Firm Survey,” Ewing Marion Kauffman Foundation; U.S. Small Business Administration, Office of Advocacy, from data provided by the U.S. Census Bureau, Business Dynamics Statistics.