Small businesses’ profitability and their success applying for financing held steady from 2017 to 2018, according to the latest Small Business Credit Survey—a joint effort by the 12 regional Federal Reserve Banks—released today. More than half of employer firms surveyed reported that they were profitable in 2018 and had seen increased revenues throughout the year. More than 7 in 10 said they expect revenue to grow in 2019, while 44% expect to add more jobs.
Demand for financing climbed from the 2017 survey, with 43% of employer firms applying for financing in the previous 12 months. Of those who applied, 47% received the full amount requested, roughly the same as the year before. Traditional bank lending remains the primary source of financing for the nation’s small businesses, though the survey noted continued growth in borrowers who applied for financing through nonbank online lenders (32% in 2018 versus 24% in 2017 and 19% in 2016).
Small banks approved at least some of the amount requested for 71% of credit applicants, while large and regional banks approved credit for 58% of applicants—both figures in line with recent trends. Approval rates at online lenders shot up to 82% from 69% in 2016. However, higher interest rates and unfavorable repayment terms drove significantly lower satisfaction rates with online lenders compared to banks. Net satisfaction with online lenders fell six points to 33% in 2018, while it rose to 55% for larger banks and held steady at 73% for small banks.