TLDR on the Fed’s 2019 Small Business Credit Survey
Updated: Aug 10, 2021
Every year, the Federal Reserve publishes awesome data on small business credit trends. And a lot of people would love to share some of their great insights. But let’s face it, it’s summertime and most of us don’t have time to read 40 page government reports!
So we took the time to read through the 2019 Small Business Credit Survey report and are sharing our cliffnotes. Here are some helpful stats you can have at the ready for your next meeting!
1. 31% of small businesses are growing
Despite the economic ups and downs in the news headlines, the fundamental drivers of small business growth remain strong. Up from 29% in 2017, 31% of employer firms reported that they are growing, meaning that in the past year they have increased revenues, increased employment, and have plans to maintain or increase employee count going forward. That said, small businesses are treading more carefully than before. This year 44% of small businesses are looking to hire in the coming year, down from 2018’s 48%.
Still, this means that about one in three small businesses in your neighborhood is seeing increased revenues, is looking to hire, and may even be considering expanding.
2. 43% of small businesses sought external funds for their business, but not all received the capital they needed
Whether it’s to launch a new business opportunity or to meet payroll during the offseason, businesses rely on external sources of financing. But unfortunately, that essential capital can prove hard to find. Although 43% of businesses sought financing over the last year, less than half of them, 47% to be precise, actually received the full amount of capital they needed.
Digging a little deeper into businesses with smaller capital needs, the report found that of businesses seeking between $25,000 and $100,000 in financing, 55% received less money from lenders than they were looking for. What happens when these smaller businesses short on capital fall through the cracks? They turn to online alternative lenders...
3. 33% more businesses borrowed from online lenders in 2018 than in 2017
The Small Business Credit Survey showed that 32% of small businesses seeking financing applied to online lenders such as Kabbage, OnDeck, Square Capital, or CANCapital. These alternative sources of capital can offer approvals in a matter of just a few days - a blessing for cash-strapped businesses in a time crunch.
But, unfortunately, this fast cash comes at a cost in the form of higher interest rates, steep prepayment penalties, and oftentimes, hidden fees. In fact, of business owners who borrowed from online lenders, 53% of them indicated that high-interest rates made working with these types of lenders challenging. Online lending shows no signs of slowing down either, in 2017 24% of businesses seeking financing applied to an online lender compared to 2018’s 33% - a tremendous 37% growth rate. If online lending continues to grow, refinancing these high-interest loans will become increasingly important for our community.
Our take: access to affordable community capital is more important than ever
One in three businesses in our neighborhoods is actively growing, but unfortunately, traditional lendings sources are struggling to keep up. In their stead, the online lending industry has risen up to offer costly yet convenient loans. Now more than ever, it’s important that local communities take stock of quality local lenders and work together to help small businesses efficiently access the capital they need to thrive.
Are you looking for a community-minded small business lender to help take businesses in your community to the next level? Learn more about bringing Honeycomb to your community at honeycombcredit.com/community.