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- On September 12, 2018
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The Small Business Credit Survey (SBCS) is conducted every year based on responses from over 8,000 small employer firms, defined as companies with 499 employees or less. Small businesses reported stronger revenue growth and profitability but there remain significant financial challenges for many firms. Overall, the SBCS survey finds:
- Improved performance in 2017 and heightened optimism for revenue and employment growth in 2018.
- Comparatively weaker demand for new financing, with a smaller share of firms applying for new capital than in prior years and half of nonapplicants reporting that they had sufficient financing.
- Improved financing success for applicants, with a larger share receiving the full amount of financing requested and higher success rates for loan and line of credit applicants compared to 2016.
- A moderate increase in applications to online lenders overall in 2017, with notably higher application rates among self-reported medium and high credit risk firms.
- Continued financial challenges—most commonly, paying operating expenses and wages, and credit availability—for some firm segments, particularly recent credit applicants, micro firms (≤$100K in annual revenues), startups (0-5 years), and firms in the leisure and hospitality industry.
Online Lending Trending Upward
More small businesses applied to online lenders in 2017 than in 2016: 24% and 21% respectively. Forty percent of medium or high credit risk companies applied for online lending, which is only slightly less than those in the same category that applied to large banks (49%) and small banks (47%). Seventy-one percent of medium and high credit risk companies gained financing from online lenders, compared to large banks (35%), small banks (47%) and credit unions (26%).
Small businesses who sought funding from online sources cited the speed of credit decisions, improved funding chances, and lack of collateral requirements as the reasons why they went that route. Although there is a higher success rate with online lenders, small business applicants were least satisfied with them due to high-interest rates and unfavorable repayment terms.
Small Businesses Facing Financial Challenges
Some industries were more vulnerable than others when it came to financial issues. In fact, 64% of small businesses said they faced financial issues in 2017. However, the majority of those are businesses with annual revenue of less than $100k or startups. Forty percent of all small businesses said they faced issues paying operating expenses, but 52% of firms with less than $100k in revenue agreed and 46% of startups agreed.
The leisure and hospitality industry is most commonly affected, with 48% reporting that they had trouble paying operating expenses. Thirty-eight of small businesses in this category said they had issues with paying off debt.
Some companies struggling to obtain necessary financing look to alternative lending companies, like National Business Helpers, to secure working capital or a business cash advance.
Overall, the SBCS results for 2017 were positive for the future of small businesses in 2018 as they continue to be optimistic and reach financial goals through financing or earning enough revenue to continually improve the business.