Operating Expenses, Access to Credit Top Challenges for Non-Employer Small Businesses

Nonemployer firms — those without full-time or part-time employees on payroll — said that meeting operating expenses and accessing credit were their top financial challenges, according to a new report today by the Federal Reserve Banks of New York, Cleveland and Richmond. When faced with financial challenges, almost three in four said they used personal funds to address financing shortfalls, while 29 percent took on additional debt.

A quarter of nonemployer firms sought financing in the last 12 months, and of those, just over a third received the full amount they applied for, the study found. Applicants noted that the top three factors influencing where they would apply for credit included: the chance of being funded (59 percent); speed of decision or funding (45 percent); and the cost or interest rate (39 percent).

The study also found that for nonemployer firms, personal credit histories were critical for securing financing; almost 40 percent used personal guarantees to secure their debt, and low credit scores or insufficient credit histories were the top reasons for credit denial. Among nonemployer firms, credit cards were the most commonly held financing product, with 45 percent using one regularly. Twenty-seven percent said they regularly used a loan or line of credit.


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