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The Federal Reserve recently released their 2017 Small Business Credit Survey, a national collaboration among the 12 Federal Reserve Banks, providing prudential information on small businesses’ performance, debt and credit experiences from the third and fourth quarter of last year. Findings show an increase in reported revenue growth and profitability, as well as financial difficulties in some firm segments.
The survey includes responses from over 8,000 small employer firms in the United States that have full- or part-time employees. The highlights of the report include general improved performance and heightened optimism regarding revenue and employment growth from small businesses entering 2018. In particular, 66 percent of firms anticipated revenue growth this year, while 44 percent expected to hire more employees.
There was a weaker demand for financing as a smaller percentage of firms applied for financing, either due to sufficient funds or a worry of not qualifying. Only 40 percent of the firms included in the survey applied for funding, compared to 45 percent in 2016.
Most firms seeking capital sought $100,000 or less in financing, at 55 percent. Firms that applied for funding experienced greater success rates in loans and lines of credit, and were more likely to receive the full amount of funds requested compared to 2016. Forty-six of applicant firms reported that they received the full amount, and increase from 40 percent.
Some segments of the nation’s small employer firms experienced greater financial challenges in covering operating expenses and wages, and access to available credit. These types included recent credit applicants, firms with less than $100,000 in annual revenues, startups (i.e., firms established in the last 5 years), and firms in the leisure and hospitality industry.
These segments reported that they often received less than the full amount of funding requested—70 percent of micro firms and 61 percent of startups witnessed such shortfalls. Firms that fall into credit-risk categories also experienced gaps in funding. Specifically, 44 percent of firms with low credit risk reported financial gaps, compared to 71 percent for medium credit risk firms and 90 percent for high credit risk firms. Those firms in the higher risk category frequently lacked sufficient credit history or collateral.
To address financial gaps, firms who had difficulty receiving requested funds often tapped into their personal funds to cover expenses, about 67 percent of firms, while 39 percent were forced to take out additional debt.
Read the full report here.