Small Businesses and Financing Shortfalls
About half of small businesses that applied for financing experienced financing shortfalls between the third quarter of 2014 and the third quarter of 2015, according to the 2015 Small Business Credit Survey.
This survey explored business conditions and the credit environment from the perspective of small business owners. The most recent version expanded its reach from four Federal Reserve banks participating in 2014 to seven: St. Louis, Atlanta, Boston, Cleveland, New York, Philadelphia and Richmond.
While half of the applicant firms received the full amount of financing requested, the percentage receiving the full amount differed by firm size. Namely, the larger the firm according to annual revenue, the more likely it had received all the financing requested. The figure below shows the financing shortfalls broken out by size of firm, according to annual revenues.
The survey also examined the top reasons for being denied credit, as well as the reported impacts on the businesses. Across all firms, the top two reasons for credit denial were insufficient collateral and weak business performance. The top two reported impacts on business were being unable to meet expenses and delaying expansions.
Microbusinesses (those with less than $100,000 in annual revenues) said insufficient credit history and insufficient collateral were the top two reasons for being denied credit. As with the all-firms category, the top two impacts on business were being unable to meet expenses and delaying expansions.
The survey also looked at growing firms.1 Similar to the issues for microbusinesses, the top two reasons for credit denial were insufficient credit history and insufficient collateral. The top two impacts on business were delaying expansions and needing to use personal funds for the business.
Notes and References
1 Growing firms were defined as those with increased revenues over the past 12 months, increased employees over the past 12 months and plans to increase or maintain the number of employees over the next 12 months.