May 31, 2018

Federal Reserve Releases New Small Business Credit Survey

Each year, the Federal Reserve conducts their Small Business Credit Survey (SBCS). They target businesses with fewer than 500 employees, which account for more than 99% of all establishments in the United States. And their responses come from more than 8,000 business owners from across the country, with representation from all regions.

The SBCS prompts respondents to report on their business performance, financing choices, and experiences with borrowing money. It gives a snapshot of what conditions were like in Q3 and Q4 of 2017, when the survey was administered, as well as forecasts for what small businesses see in their future. And, spoiler alert, the forecast is pretty darned good.

First off, small businesses reported impressive growth. Profitability increased from 27% in 2016 to 31% last year. Similarly, revenue grew from 21% to 26% and employment growth inched up from 17% to 18%. In the language of the survey, this means that 29% of companies are growing (meaning the have increased revenues, increased employees, and plans to further increase employees).

These consistently rising trends mean that business owners have a rosier outlook on things. When asked if they believe their revenue will grow in the next 12 months, 72% said yes. And nearly half of the respondents said they plan on hiring additional staff in that time period as well.

When financial strain does arise, various financing methods enter the picture. Nearly 70% of business owners turned to their personal finances, while 39% took out additional debt and 33% reduced their staff or operations. Of those who sought financing, the survey revealed that 75% opted for amounts under $250,000. And 55% of the applications were for less than $100,000. The purposes for the requests were most often expansion (59% of applications), wages (43%), and refinancing (26%).

So where do folks go when they need money? It appears there are still lots of traditionalists out there, as 48% of applications went to large banks and many others applied at smaller banks. Online lending was up, as 24% of respondents tried that route. And 18% went with “other” lenders, which includes government entities, nonprofits, private investors, family members, and other sources.

Of those who didn’t seek funding in 2017, 50% said they didn’t need to because their financing was sufficient. About a quarter of respondents said they didn’t want the additional debt, and 13% said they simply figured they’d be turned down if they applied.

For those who did apply, the results were better than in years past. Indeed, 46% got the full amount of financing they requested. In 2016, that number was only 40%. And for loan and line of credit applications, 58% got everything they asked for, versus 53% in 2016.

Not everyone got the full meal deal, of course. Financing shortfalls mostly impacted micro firms (70% failed to get the full amount requested) and startups (61% didn’t get the full amount). For those businesses with high credit risk, it’s not surprising that 90% failed to get the full amount requested. Respondents mainly said their shortfalls were due to insufficient credit history or collateral.

As noted in the SBCS, more business owners applied to online lenders than ever before. The majority of these applications were from medium/high credit risk businesses, as 40% took the online route. And this same group experienced a 71% success rate with online lending sources, compared to much lower rates from other sources (35% success at large banks, 47% at small banks, and 26% at credit unions).

Respondents to the SBCS said they were attracted to online lending because of the speed of credit decisions, higher chances of success, and fewer requirements for collateral. Things weren’t always perfect, however, as they also reported higher interest rates and unfavorable repayment terms from some online lenders.

For those who went the traditional route with banks, the commonly cited complaints were the longer wait times and overall difficulty with the application. If they were able to clear the numerous hoops and get approved, things seemed to progress better in the latter stages.

The overarching news from this latest SBCS is that the economy is healthy and the outlook for businesses is bright. And with the rise of online lending and other alternative financing sources, business owners have more options than ever when it comes to securing the funding necessary to flourish.

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About the author

Grant Olsen
Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on and Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.

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