Fed Survey Examines Credit Trends among Startups

Startup firms — those between zero and five years old that have more than one and fewer than 500 employees — face greater financing challenges than more mature businesses, according to a survey released today by the Federal Reserve. Seventy-two percent of startup firms between zero and two years old and 69 percent of startups three to five years old said they faced financial challenges in the past year, compared with 56 percent of more mature firms over five years old.

Just over half — 52 percent — of startups said they had applied for financing in the past year, with 70 percent seeking credit to expand or finance a new business opportunity. Credit demands tended to be smaller for startups than for mature companies; 63 percent of startups sought $100,000 or less in financing, compared with 49 percent of mature firms. Sixty-nine percent of startups reported receiving less than the full amount they sought, with many citing insufficient credit history as the key reason why.

Startups were still more likely to seek credit from banks than from any other source, but those considered to be medium or high credit risk were significantly more likely to apply for loans from online lenders. Thirty-nine percent of medium or high credit risk startups sought credit from online lenders, compared with just 11 percent of low credit risk startups. Small banks had the highest satisfaction rating among startups: 48 percent said they were satisfied with their small bank lender.

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