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posted on 30 April 2017

2016 Small Business Credit Survey: A Significant Majority Relied On Personal Finances

from the New York Fed

Timely information on small business financing needs, decisions and outcomes is critical to understanding and fostering the sector’s health and growth.

To provide these insights to policymakers, researchers and service providers, the Small Business Credit Survey is a national collaboration among the 12 Reserve Banks of the Federal Reserve System. In 2016, it yielded 10,303 responses from small businesses with employees, or employer firms, located in 50 states and the District of Columbia.

Results from the 2016 survey showed that while many employer small businesses were profitable and optimistic in 2016, a significant majority faced financial challenges, experienced funding gaps and relied on personal finances.

Below are some of the key findings from the report:

Similar to 2015, a majority of firms reported that they were profitable and had growing revenues in 2016.

Employer Firm Performance Index

2014 SURVEY2015 SURVEY2016 SURVEY
Profitability10%30%27%
Revenue growth19%29%21%
Employment growth11%18%17%

TABLE NOTES

61% of employer small businesses faced financial challenges in the last year.

Top Financial Challenges

ALL FIRMS
Credit availability or securing funds for expansion44%
Paying operating expenses36%
Making payments on debt25%
Purchasing inventory or supplies to fulfill contracts17%
Experienced none of these challenges39%

The most common way employer firms coped with financial challenges was by self-funding.

Actions Taken As A Result Of Financial Challenges

ALL FIRMS
Used personal funds76%
Took out additional debt44%
Made a late payment44%
Cut staff, hours and/or downsized operations43%
Negotiated terms with lender21%
Did not pay - debt went to collections8%

Most firms - 55% - sought $100,000 or less in financing.

Total Amount Of Financing Sought

ALL FIRMSSMALL FIRMS

(REVENUES ≤ $1M)

LARGE FIRMS

(REVENUES > $1M)

≤ $25K20%28%3%
$25K-$100K35%42%22%
$100K-$250K19%16%25%
$250K-$1M18%12%31%
> $1M8%3%18%

Personal assets and personal guarantees are commonly used to secure debt, even among larger firms.

Collateral Used To Secure Debt

ALL FIRMSSMALL FIRMS

(REVENUES ≤ $1M)

LARGE FIRMS

(REVENUES > $1M)

Personal guarantee58%55%67%
Business assets49%42%65%
Personal assets37%37%37%
Portions of future sales9%9%9%
None12%14%7%

60% of applicants had a financing shortfall, meaning they received less than the amount they applied for.

Total Financing Received

ALL FIRMSSMALL FIRMS

(REVENUES ≤ $1M)

LARGE FIRMS

(REVENUES > $1M)

All40%33%55%
Some36%38%31%
None24%29%14%

Banks are the most common source of credit. Smaller firms also frequently turn to online lenders and other sources.

Credit Sources Applied To

ALL FIRMSSMALL FIRMS

(REVENUES ≤ $1M)

LARGE FIRMS

(REVENUES > $1M)

Large bank50%49%52%
Small bank46%42%53%
Online lender21%26%12%
Credit union11%13%4%
CDFI6%7%3%
Other20%22%16%

Successful applicants reported greatest satisfaction with small banks and credit unions.

Lender Satisfaction

SATISFIEDNEUTRALDISSATISFIED
Large bank61%24%15%
Small bank80%15%5%
Online lender46%35%19%
Credit union78%19%3%
CDFI77%22%1%

[DOWNLOAD THE FULL REPORT]

Source

https://www.newyorkfed.org/smallbusiness/small-business-credit-survey-employer-firms-2016

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