2016 Small Business Credit Survey: Report on Employer Firms

Timely information on small business financing needs, decisions and outcomes is critical to understanding and fostering the sector’s health and growth.

To provide these insights to policymakers, researchers and service providers, the Small Business Credit Survey is a national collaboration among the 12 Reserve Banks of the Federal Reserve System. In 2016, it yielded 10,303 responses from small businesses with employees, or employer firms, located in 50 states and the District of Columbia.

Results from the 2016 survey showed that while many employer small businesses were profitable and optimistic in 2016, a significant majority faced financial challenges, experienced funding gaps and relied on personal finances.

Below are some of the key findings from the report:

Employer Firm Performance Index

 2014 Survey2015 Survey2016 Survey
Profitability 10% 30% 27%
Revenue growth 19% 29% 21%
Employment growth 11% 18% 17%
Table Notes
For revenue and employment growth, the index is the share reporting positive growth minus the share reporting negative growth. For profitability, it's the share profitable minus the share not-profitable.

In order to compare years, the 2014 and 2015 survey data have been reweighted to represent the nation as a whole.
Similar to 2015, a majority of firms reported that they were profitable and had growing revenues in 2016.
Table Notes
61% of employer small businesses faced financial challenges in the last year.

Top Financial Challenges

 All Firms
Credit availability or securing funds for expansion 44%
Paying operating expenses 36%
Making payments on debt 25%
Purchasing inventory or supplies to fulfill contracts 17%
Experienced none of these challenges 39%
The most common way employer firms coped with financial challenges was by self-funding.

Actions Taken as a Result of Financial Challenges

 All Firms
Used personal funds 76%
Took out additional debt 44%
Made a late payment 44%
Cut staff, hours and/or downsized operations 43%
Negotiated terms with lender 21%
Did not pay—debt went to collections 8%
Most firms—55%—sought $100,000 or less in financing.

Total Amount of Financing Sought

 All FirmsSmall Firms
(Revenues ≤ $1M)
Large Firms
(Revenues > $1M)
≤ $25K 20% 28% 3%
$25K-$100K 35% 42% 22%
$100K-$250K 19% 16% 25%
$250K-$1M 18% 12% 31%
> $1M 8% 3% 18%
Personal assets and personal guarantees are commonly used to secure debt, even among larger firms.

Collateral Used to Secure Debt

 All FirmsSmall Firms
(Revenues ≤ $1M)
Large Firms
(Revenues > $1M)
Personal guarantee 58% 55% 67%
Business assets 49% 42% 65%
Personal assets 37% 37% 37%
Portions of future sales 9% 9% 9%
None 12% 14% 7%
60% of applicants had a financing shortfall, meaning they received less than the amount they applied for.

Total Financing Received

 All FirmsSmall Firms
(Revenues ≤ $1M)
Large Firms
(Revenues > $1M)
All 40% 33% 55%
Some 36% 38% 31%
None 24% 29% 14%
Banks are the most common source of credit. Smaller firms also frequently turn to online lenders and other sources.

Credit Sources Applied To

 All FirmsSmall Firms
(Revenues ≤ $1M)
Large Firms
(Revenues > $1M)
Large bank 50% 49% 52%
Small bank 46% 42% 53%
Online lender 21% 26% 12%
Credit union 11% 13% 4%
CDFI 6% 7% 3%
Other 20% 22% 16%
Successful applicants reported greatest satisfaction with small banks and credit unions.

Lender Satisfaction

Large bank 61% 24% 15%
Small bank 80% 15% 5%
Online lender 46% 35% 19%
Credit union 78% 19% 3%
CDFI 77% 22% 1%
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