The Federal Reserve Small Business Credit Survey is a collaboration among all 12 Fed Banks. The survey reports information about the business performance, financing needs and choices, and borrowing experiences of businesses with fewer than 500 employees. In 2016, the survey yielded 15,991 responses - 10,303 responses from employer firms.
Performance and Expectations
Similar to the 2015 survey, about half of the firms were profitable and had growing revenues. Most firms were also optimistic about the coming year, with a net 61% expecting revenues to grow and 39% anticipating job growth.
Changes in debt levels and expectations about future debt were modest. 34% saw their debt levels increase in 2016 and only 19% expect to increase their debt levels in 2017.
Financial Challenges and Reliance on Personal Finances
Despite their optimism, 61% of firms faced financial challenges in the last year. The top challenges were accessing necessary credit (44%) and meeting operating expenses (36%).
The vast majority of firms addressed financial challenges by using personal finances (76%) before taking on additional debt (44%). Most also relied on the owners' personal credit scores to obtain financing (87%).
Financing Demand, Approvals and Sources
Similar to the results of the 2015 survey, 45% of firms applied for financing.
Most loan applications were very small, with 55% of firms applying for $100,000 or less in financing and 74% applying for $250,000 or less in financing.
Applicants were more likely than non-applicants to be growing (34% versus 25%) but were more likely to have experienced recent financial challenges (76% versus 48%).
Banks were the most common source of credit for firms, with 50% applying to large banks and 46% applying to small banks.
Loans or lines of credit were the most frequently sought lending products (86%). Loan applicants had greater success at community development financial institutions, small banks and online lenders than at large banks.
"Smaller" employer small businesses (with $1,000,000 or less in revenue) make up 70% 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 $1,000,000 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.
Smaller firms were:
More likely to face financial challenges (67%) than larger firms (47%).
More dependent on personal finances (25% relied on personal finances and 48% relied exclusively on a personal credit score) compared to larger firms (11% and 25%, respectively).
More likely to face financing shortfalls, with 67% of applicants reporting a gap compared to 45% of larger firms.
Notably less successful at obtaining financing at large banks (45% success) than larger firms were (72% success).
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