Between 2019 and 2020, traditional financing declined among both non-employer and employer firms as the COVID-19 pandemic began, according to Small Business Credit Survey figures released today by the Federal Reserve Banks. The share of non-employer firms that applied for financing declined from 29% in 2019 to 24% in 2020. The percent of employer firms applying for financing declined from 43% in 2019 to 37% in 2020.
Firms without full-time or part-time employees on payroll were less likely to use a large or small bank for financial services in 2020 compared to employer firms and were more likely to report they did not use any financial services providers.
Forty-one percent of non-employer firms, which account for four in five of U.S. small businesses, said they used a large bank, compared to 49% of employer firms. Twenty eight percent of non-employer firms said they used a small bank compared to 45% of firms with employees. Eighteen percent of non-employer businesses reported not using financial services, compared with 7% of firms that hire employees, according to the survey.
Approval rates declined in 2020 for loans, lines of credit and cash advance applications. The approval rates for employer firms declined from 81% before March 1, 2020, to 70% after that date. For non-employer firms, approval rates declined from 64% to 51% in the same time period.