Survey: Traditional Banks Remain Primary Source for Small Biz Funding

Traditional bank lending remains the primary source of financing for the nation’s small businesses, according to the 2015 Small Business Credit Survey—a joint effort by several regional Federal Reserve banks—released today. The majority of small business credit came from small banks, which approved at least some of the amount requested for 76 percent of credit applicants, while large banks approved credit for 58 percent.

Small banks also received the highest satisfaction rating among customers, earning a score of 75 compared to large banks, which earned a score of 51. And while alternative nonbank lenders generally had high credit approval ratings—71 percent of borrowers were approved for at least some credit—they earned a far lower satisfaction rating than their bank competitors with a score of only 15. Consumers cited unfavorable repayment terms and high interest rates as reasons for dissatisfaction.

When it came to seeking financial advice, bankers and lenders were the most sought-after; 73 percent of applicants said they asked a banker or lender for advice, compared with 40 percent who turned to accountants, consultants or business advisors. The study pointed out that microbusinesses (those with less than $100,000 in revenue) were more likely to take advice from multiple sources, including Small Business Development Centers and loan brokers.

Overall, firm performance and financing success rates improved year-on-year, with a larger share of applicants reporting profitability and revenue growth than in 2014. Half of the firms surveyed said they received all of the credit they sought, though microbusinesses and startups reported the largest credit shortfalls. Insufficient collateral was cited as the top reason for credit denial.