All 12 Federal Reserve Banks jointly conduct the Small Business Credit Survey (SBCS) each year. This survey is compiled by responses from over 8,000 small employer firms, defined as companies with 499 employees or less. These companies represent each of the 50 states and the District of Columbia. The purpose of the survey is to gather data in a timely manner to determine the financing needs of small businesses and then communicate that information to policymakers, researchers, lenders, and service providers.
SBCS Survey Overview
SBCS found that, overall, small businesses are declaring strong revenue growth in the third and fourth quarters of 2017. However, certain industries are facing challenges. Most small businesses are optimistic about their business performance in 2018, due to their improved performances in 2017. They expect to see an increase in revenue and employees.
Many respondents said they are sufficiently funded, leading to a decreased demand for new financing. Of those businesses who are seeking financing from lenders and other sources, many more are granted the entire amount of financing they asked for, when compared to survey results in 2016. On the other hand, those firms that are recent credit applicants, have less than $100k in annual revenue, start-ups, and those in the leisure/hospitality industry are commenting that they face financial challenges.
Small Businesses are Optimistic
The majority of small businesses saw a rise in profitability, revenue growth, and employment growth in 2017 over the data gathered in 2016. In conjunction with this data, small businesses are also optimistic for 2018, with 66% anticipating revenue growth and 44% expecting to hire more employees.
Fewer Firms Applying for Financing
While 45% of small businesses applied for financing in 2016, only 40% surveyed applied in 2017. Most of those applying for financing in 2017 did so to expand their business (59%), ensure appropriate funds available for operating expenses (43%), or refinancing (26%). Small businesses sought their funding from large banks, small banks, and online lenders. Notably, 18% of small businesses requested financing from auto/equipment dealers, farm lending institutions, friends/family, nonprofit organizations, private investors, and government entities. Of those who did not apply for financing, 50% said they were sufficiently funded, while another 26% remarked that they were wary of taking on additional debt. Thirteen percent did not apply because they felt there was the possibility they would be turned down for a loan.
Gaps in Financing
While fewer small businesses applied for financing, more actually received the amount they asked for (46% in 2017 vs. 40% in 2016). Firms with a revenue of less than $100k and start-ups were the most likely to not receive full funding. The percent of small businesses with a low credit risk experiencing a financing gap came in at 44%; this is compared to 71% of medium credit risk businesses and 90% of high credit risk firms. Company owners in these categories stated that the shortfalls were likely due to insufficient credit histories and collateral.
Alternative lending companies are helping to bridge the gap for businesses struggling to obtain financing. At Imperial Advance, among a variety of small business working capital solutions, there are business term loans, revenue-based financing, lines of credit and merchant cash advance options available to our clients. The business term loan, for example, allows a business owner to leverage up to 250% of their monthly revenue, loans like this are difficult to obtain from banks and other traditional lending sources.