News: General News

Small Employers Report Growth, Less Demand for Financing

Friday, May 25, 2018  
Share |

Demand for new small business financing declined in 2017 while credit access increased, according to the newly released Small Business Credit Survey from the 12 Federal Reserve Banks. Fielded in Q3 and Q4 2017, the survey yielded 8,169 responses from small employer firms, businesses that have up to 499 full- or part-time employees.

Findings include:

  • In 2017, the majority of firms reported they were profitable and had growing revenues. The net share of firms reporting profitability, revenue growth, and employment growth all increased from 2016 levels. 
  • Expectations for revenue and employment reached their highest levels since 2015. Reflective of this optimism, a net 66 percent of firms anticipate revenue growth in 2018, while 44 percent expected to hire new employees. 
  • Demand for financing declined modestly, with 40 percent of firms applying for funding, down from 45 percent in 2016. 
  • As in previous years, most applicant firms (55 percent) were seeking $100,000 or less in financing; three quarters sought $250,000 or less. 
  • Though applicants most frequently sought credit for expansion (59 percent), borrowing needs also reflected uneven cash flow and cost pressures, with sizable shares borrowing to fund operating expenses including wages (43 percent), and to refinance (26 percent). 
  • Firms also reported higher success rates for loan and line of credit applications, with 58 percent receiving all of the credit requested, up from 53 percent in 2016. 
  • Financing shortfalls—receiving less than the amount requested—were more common among micro firms (annual revenues of $100,000 or less) and startups (0–5 years). Seventy percent of micro firm applicants and 61 percent of startups experienced shortfalls. 
  • Sixty-four percent of firms experienced financial challenges in the last year. While the most common challenges overall were paying operating expenses (40 percent) and credit availability (30 percent), these challenges were particularly acute for firms with annual revenues of $100,000 or less (52 percent and 36 percent, respectively), and for startups (46 percent and 39 percent, respectively). 
  • Firms most often addressed financial challenges by using personal funds—67 percent of business owners used personal finances to do so, and 39 percent took out additional debt.