Fed Survey: Small Biz Performance, Loan Applications Tick Down

Small business performance and financing success rates dipped slightly in 2016, according to the latest Small Business Credit Survey — a joint effort by the 12 regional Federal Reserve banks, conducted nationwide for the first time — released today. Slightly smaller shares of firms reported profitability, revenue growth and employment growth. Seven in 10 expect revenue to grow in 2017, while less than half expect to add more jobs.

Forty-five percent of firms applied for financing, a slight tick down from 2015. Three-quarters said they received at least some financing, and 40 percent said they received the full amount — down from 50 percent the year before. Traditional bank lending remains the primary source of financing for the nation’s small businesses, with small banks approving at least some of the amount requested for 67 percent of credit applicants, while large banks approved credit for 54 percent of applicants.

Credit approval rates fell in all lender categories, including nonbank alternative lenders and credit unions, which saw approval rates fall by 13 points. Small banks and credit unions shared a high satisfaction rating (75 percent on net) among customers. Larger banks saw net satisfaction of 46 percent. Community development financial institutions also rated highly, at 76 percent satisfaction. And while they improved their satisfaction rating 12 points from the previous year, nonbank alternative lenders earned a far lower satisfaction rating than their depository competitors at only 27 percent. Consumers cited lack of transparency and high interest rates as reasons for dissatisfaction.

Firms with revenue of more than $1 million were more likely to have credit approved from all sources except for CDFIs, which approved applications at a rate of 77 percent regardless of the size of the business. Online lenders and large banks saw the biggest disparities, with larger firms over 25 percentage points more likely to have credit approved than business with less than $1 million in revenue.