SMALL BUSINESS CREDIT SURVEY - Report on Employer Firms

2017




SMALL BUSINESS
CREDIT SURVEY
Report on Employer Firms




        F E D E R A L R E S E RV E B A N K S o f
        Atlanta • Boston • Chicago • Cleveland • Dallas • Kansas City • Minneapolis
        New York • Philadelphia • Richmond • St. Louis • San Francisco
TABLE OF CONTENTS


I     ACKNOWLEDGMENTS                 19   FIRM SIZE: PERFORMANCE
                                           AND CHALLENGES
III   EXECUTIVE SUMMARY
                                      20   FIRM SIZE: DEMAND FOR FINANCING
1     PERFORMANCE                     21   FIRM SIZE: CREDIT OUTCOMES

2     GROWTH EXPECTATIONS             22   FIRM AGE: PERFORMANCE
3     FINANCIAL CHALLENGES                 AND CHALLENGES

4     FUNDING BUSINESS OPERATIONS     23   FIRM AGE: DEMAND FOR FINANCING

5     RELIANCE ON PERSONAL FINANCES   24   FIRM AGE: CREDIT OUTCOMES


6     DEMAND FOR FINANCING            25   INDUSTRY: PERFORMANCE

7		   FINANCING RECEIVED              26   INDUSTRY: FINANCIAL CHALLENGES

8		   FINANCING SHORTFALLS            27   INDUSTRY: DEMAND FOR FINANCING

                                      28   INDUSTRY: DEMAND FOR FINANCING
9		   APPLICATIONS                         AND CREDIT OUTCOMES

10    LOAN/LINE OF CREDIT SOURCES     29   INDUSTRY: CREDIT OUTCOMES

12    LOAN/LINE OF CREDIT APPROVAL
                                      31   METHODOLOGY
14    LENDER SATISFACTION
                                      34   DEMOGRAPHICS
15    NONAPPLICANTS AND CREDIT USE

16    FINANCIAL CHALLENGES:
      NONAPPLICANTS AND APPLICANTS

17    NONAPPLICANT DEBT HOLDINGS

18    NONAPPLICANT LOAN/LINE OF
      CREDIT SOURCES
ACKNOWLEDGMENTS


The Small Business Credit Survey is made possible through collaboration with more than 500 business organizations in communities across
the United States. The Federal Reserve Banks thank the national, regional, and community partners who share valuable insights about
small business financing needs and collaborate with us to promote and distribute the survey.1 We also thank the National Opinion Research
Center (NORC) at the University of Chicago for assistance with weighting the survey data to be statistically representative of the nation’s
small business population.2

Special thanks to colleagues within the Federal Reserve System, especially the Community Affairs Officers3 and representatives from the
U.S. Small Business Administration, Opportunity Finance Network, Accion, and The Aspen Institute for their incisive feedback and support
for this project. Thanks also to Reserve Bank colleagues for their constructive feedback on earlier drafts of the report.4

We particularly thank the following individuals:

Menna Demessie, Vice President, Policy Analysis and Research,                        Lauren Rosenbaum, Communications Manager, US Network, Accion
Congressional Black Caucus Foundation                                                Mark Schweitzer, Senior Vice President, Federal Reserve Bank
Annie Donovan, Director, CDFI Fund, U.S. Department of the Treasury                  of Cleveland
Ingrid Gorman, Research and Insights Director, Association                           Lauren Stebbins, Vice President, Small Business Initiatives,
for Enterprise Opportunity                                                           Opportunity Finance Network
Tammy Halevy, Senior Vice President, New Initiatives, Association                    Jeffrey Stout, Director, State Small Business Credit Initiative,
for Enterprise Opportunity                                                           US Department of the Treasury
Gina Harman, Chief Executive Officer, Accion USA                                     Tom Sullivan, Vice President, Small Business Policy, US Chamber
                                                                                     of Commerce
Brian Headd, Chief Economic Advisor, U.S. Small Business
Administration                                                                       Storm Taliaferrow, Manager of Membership and Impact Assessment,
                                                                                     National Association for Latino Community Asset Builders (NALCAB)
Joyce Klein, Director, FIELD, The Aspen Institute
                                                                                     Richard Todd, Vice President, Federal Reserve Bank of Minneapolis
Joy Lutes, Vice President of External Affairs, National Association
of Women Business Owners                                                             Holly Wade, Director of Research and Policy Analysis, National
                                                                                     Federation of Independent Business
Robin Prager, Senior Adviser, Federal Reserve Board of Governors
Alicia Robb, Chief Executive Officer, Next Wave Ventures




1   For a full list of community partners, please visit www.fedsmallbusiness.org/partnership.
2   For complete information about the survey methodology, please see p. 31.
3   Joseph Firschein, Board of Governors of the Federal Reserve System; Karen Leone de Nie, Federal Reserve Bank of Atlanta; Prabal Chakrabarti, Federal Reserve Bank
    of Boston; Alicia Williams, Federal Reserve Bank of Chicago; Emily Garr Pacetti, Federal Reserve Bank of Cleveland; Roy Lopez, Federal Reserve Bank of Dallas;
    Tammy Edwards, Federal Reserve Bank of Kansas City; Tony Davis, Federal Reserve Bank of New York; Michael Grover, Federal Reserve Bank of Minneapolis; Theresa
    Singleton, Federal Reserve Bank of Philadelphia; Sandy Tormoen, Federal Reserve Bank of Richmond; Daniel Davis, Federal Reserve Bank of St. Louis; and David
    Erickson, Federal Reserve Bank of San Francisco.
4   Brian Clarke, Federal Reserve Bank of Boston; Emily Engel, Federal Reserve Bank of Chicago; Emily Perlmeter, Federal Reserve Bank of Dallas; Dell Gines, Federal
    Reserve Bank of Kansas City; Michou Kokodoko, Federal Reserve Bank of Minneapolis; and Emily Corcoran, Shannon McKay, and Samuel Storey, Federal Reserve Bank
    of Richmond.



2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                                                                                            i
ACKNOWLEDGMENTS (CONTINUED)


This report is the result of the collaborative effort, input, and analysis of the following teams:


REPORT TEAM                                                                   Garvester Kelley, Federal Reserve Bank of Chicago
Jessica Battisto, Federal Reserve Bank of New York                            Steven Kuehl, Federal Reserve Bank of Chicago
Mels de Zeeuw, Federal Reserve Bank of Atlanta                                Michou Kokodoko, Federal Reserve Bank of Minneapolis
Claire Kramer Mills, Federal Reserve Bank of New York                         Lisa Locke, Federal Reserve Bank of St. Louis
Scott Lieberman, Federal Reserve Bank of New York                             Shannon McKay, Federal Reserve Bank of Richmond
Ann Marie Wiersch, Federal Reserve Bank of Cleveland                          Emily Mitchell, Federal Reserve Bank of Atlanta
                                                                              Craig Nolte, Federal Reserve Bank of San Francisco
OUTREACH TEAM
                                                                              Drew Pack, Federal Reserve Bank of Cleveland
Leilani Barnett, Federal Reserve Bank of San Francisco
                                                                              Emily Perlmeter, Federal Reserve Bank of Dallas
Bonnie Blankenship, Federal Reserve Bank of Cleveland
                                                                              Marva Williams, Federal Reserve Bank of Chicago
Jeanne Milliken Bonds, Federal Reserve Bank of Richmond
                                                                              Javier Silva, Federal Reserve Bank of New York
Nathaniel Borek, Federal Reserve Bank of Philadelphia
Laura Choi, Federal Reserve Bank of San Francisco                             SURVEY DEVELOPMENT TEAM
Brian Clarke, Federal Reserve Bank of Boston                                  Jessica Battisto, Federal Reserve Bank of New York
Joselyn Cousins, Federal Reserve Bank of San Francisco                        Brian Clarke, Federal Reserve Bank of Boston
Naomi Cytron, Federal Reserve Bank of San Francisco                           Emily Corcoran, Federal Reserve Bank of Richmond
Peter Dolkart, Federal Reserve Bank of Richmond                               Mels de Zeeuw, Federal Reserve Bank of Atlanta
Emily Engel, Federal Reserve Bank of Chicago                                  Claire Kramer Mills, Federal Reserve Bank of New York
Ian Galloway, Federal Reserve Bank of San Francisco                           Karen Leone de Nie, Federal Reserve Bank of Atlanta
Dell Gines, Federal Reserve Bank of Kansas City                               Scott Lieberman, Federal Reserve Bank of New York
Jen Giovannitti, Federal Reserve Bank of Richmond                             Shannon McKay, Federal Reserve Bank of Richmond
Desiree Hatcher, Federal Reserve Bank of Chicago                              Ellyn Terry, Federal Reserve Bank of Atlanta
Melody Head, Federal Reserve Bank of San Francisco                            Ann Marie Wiersch, Federal Reserve Bank of Cleveland
Jason Keller, Federal Reserve Bank of Chicago


We thank all of the above for their contributions to this successful national effort.

Claire Kramer Mills, PhD
Assistant Vice President
Federal Reserve Bank of New York
The views expressed in the following pages are those of the report team and
do not necessarily represent the views of the Federal Reserve System.




2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                                                          ii
EXECUTIVE SUMMARY


The Small Business Credit Survey (SBCS),                  ƒƒ Continued financial challenges—most                    ƒƒ Firms sought financing most frequently
a national collaboration of the 12 Federal                   commonly, paying operating expenses and                   at large banks (48%), small banks (47%),
Reserve Banks, provides timely i­nformation                  wages, and credit availability—for some                   and online lenders (24%). However, a
on small business financing needs, decisions,                firm segments, particularly recent credit                 notable share (18%) turned to other lend-
and outcomes to policy makers, researchers,                  applicants, micro firms (≤$100K in annual                 ers, including auto/equipment dealers,
lenders, and service providers.                              revenues), startups (0-5 years), and firms                farm lending institutions, friends/family,
                                                             in the leisure and hospitality industry.                  nonprofits, private investors, and govern-
The report findings provide an in-depth                                                                                ment entities.
look at small business performance, debt                  More detailed findings include the following:
                                                                                                                    ƒƒ Among nonapplicants, 50% did not apply
holdings, and credit experiences. Fielded in
                                                          IMPROVED PERFORMANCE AND                                     because they had sufficient financing.
Q3 and Q4 2017, the survey yielded 8,169
                                                          HEIGHTENED OPTIMISM                                          Another 26% were averse to taking on
responses from small employer firms, busi-
                                                                                                                       debt, and 13% did not apply because they
nesses that have 1 to 499 full- or part-time              ƒƒ In 2017, the majority of firms reported
                                                                                                                       believed they would be turned down.
employees (hereafter “firms”), in the 50                     they were profitable and had growing
states and the District of Columbia. New fea-                revenues. The net share of firms reporting             IMPROVED FINANCING SUCCESS BUT
tures of this year’s report include expanded                 profitability, revenue growth, and                     NOTEWORTHY GAPS
time trend information and a detailed look                   employment growth all increased from
at the credit experiences of firms by various                2016 levels.                                           ƒƒ A larger share of applicants received the
segments including revenue size, age, and                                                                              full amount of financing requested—46 %
                                                          ƒƒ Expectations for revenue and employment                   in 2017, compared to 40% in 2016.
industry. The survey findings complement
                                                             reached their highest levels since 2015.
other national data on aggregate lending                                                                            ƒƒ Firms also reported higher success rates
                                                             Reflective of this optimism, a net 66%
volumes and lender perceptions.1                                                                                       for loan and line of credit applications,
                                                             of firms anticipate revenue growth
                                                             in 2018, while a net 44% expect to hire                   with 58% receiving all of the credit re-
Heading into 2018, small businesses report-                                                                            quested, up from 53% in 2016.
ed stronger revenue growth and profitability                 new employees.
but continued financial challenges for some                                                                         ƒƒ Financing shortfalls—receiving less than
                                                          WEAKER DEMAND FOR NEW FINANCING                              the amount requested—were more com-
segments of firms. Overall, the survey finds:
                                                          ƒƒ Demand for financing declined modestly,                   mon among micro firms (annual revenues
ƒƒ Improved performance in 2017 and                          with 40% of firms applying for funding,                   of $100K or less) and startups (0–5
   heightened optimism for revenue and                       down from 45% in 2016.                                    years). Seventy percent of micro firm ap-
   employment growth in 2018.                                                                                          plicants and 61% of startups experienced
                                                          ƒƒ As in previous years, most applicant firms
                                                                                                                       shortfalls.
ƒƒ Comparatively weaker demand for new                       (55%) were seeking $100K or less in
   financing, with a smaller share of firms                  financing; three quarters sought $250K                 ƒƒ There were other notable funding short-
   applying for new capital than in prior years              or less.                                                  falls that varied across self-reported
   and half of nonapplicants reporting that                                                                            credit-risk categories. Forty-four percent
                                                          ƒƒ Though applicants most frequently sought
   they had sufficient financing.                                                                                      of firms with low credit risk experienced a
                                                             credit for expansion (59%), borrowing
                                                                                                                       financing gap, compared to 71% of medi-
ƒƒ Improved financing success for applicants,                needs also reflected uneven cash flow and
                                                                                                                       um credit risk firms and 90% of firms with
   with a larger share receiving the                         cost pressures, with sizable shares bor-
                                                                                                                       high credit risk. Firms most frequently
   full amount of financing requested and                    rowing to fund operating expenses includ-
                                                                                                                       attributed these shortfalls to insufficient
   higher success rates for loan and line of                 ing wages (43%), and to refinance (26%).
                                                                                                                       credit histories and insufficient collateral.
   credit applicants compared to 2016.
                                                          ƒƒ Applicants on average continued to report
ƒƒ A moderate increase in applications                       a higher incidence of credit risk factors
   to online lenders2 overall in 2017, with                  than nonapplicants: a smaller share were
   notably higher application rates among                    profitable, and larger shares reported low
   self-reported medium and high credit                      credit scores or reported experiencing
   risk firms.                                               financial challenges in the prior year.



1   See, for example, the SBA Office of Advocacy’s “Quarterly Lending Bulletin,” the Federal Financial Institutions Examination Council’s (FFIEC) “Consolidated Reports of
    Condition and Income” (“Call Reports”), the Board of Governors of the Federal Reserve System’s “Senior Loan Officer Opinion Survey on Bank Lending Practices,” and
    Kansas City Federal Reserve Bank “Small Business Lending Survey.”
2   The survey questionnaire asks about a range of nonbank online providers, including retail/payments processors, peer-to-peer lenders, merchant cash advance lenders,
    and direct lenders. For purposes of topline findings, nonbank online lenders are grouped into one category, “online lenders.”



2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                                                                                                 iii
EXECUTIVE SUMMARY (CONTINUED)


MODERATELY INCREASED APPLICA-                         These findings are consistent with net          ABOUT THE SURVEY
TIONS TO ONLINE LENDERS                               satisfaction levels reported by nonapplicant
                                                                                                      The SBCS is an annual survey of firms with
                                                      debt holders, which ranged from a high of
Applications to online lenders increased                                                              fewer than 500 employees. These types of
                                                      81% for credit unions to a low of 43% for
to 24% in 2017, up from 21% in 2016.                                                                  firms represent 99.7% of all employer estab-
                                                      online lenders.
                                                                                                      lishments3 in the United States. Respondents
This percentage is higher among self-                                                                 are asked to report information about their
reported medium/high credit risk firms, with          CONTINUED FINANCIAL CHALLENGES                  business performance, financing needs
40% applying to online providers—nearly               FOR SOME SEGMENTS                               and choices, and borrowing experiences.
the same share that applied to large banks            Sixty-four percent of firms experienced         Responses to the SBCS provide insights on
(49%) and small banks (47%).                          financial challenges in the last year.          the dynamics behind lending trends and
                                                                                                      shed light on noteworthy segments of the
Self-reported medium and high credit risk             While the most common challenges overall        small business population. The SBCS is not
applicants were most successful in obtaining          were paying operating expenses (40%) and        a random sample; results should be analyzed
funding for loans, lines of credit, or cash           credit availability (30%), these challenges     with awareness of potential biases that are
advances from online sources; 71% were                were particularly acute for firms with annual   associated with convenience samples. For
funded at online providers, compared with             revenues of $100K or less (52% and 36%,         detailed information about the survey design
success rates of 35% at large banks, 47%              respectively), and for startups (46% and 39%,   and weighting methodology, please consult
at small banks, and 26% at credit unions.             respectively).                                  the Methodology section.
Applicants to online lenders report being             For leisure and hospitality firms, 48% re-      Given the breadth of the 2017 survey
attracted by the speed of credit decisions, im-       ported difficulty paying operating expenses,    data, the SBCS can shed light on various
proved funding chances, and lack of collateral        and another 38% had difficulty making pay-      segments of the small business popula-
requirements. Net borrower satisfaction with          ments on debt; these shares are higher than     tion, including startups and growing firms,
online providers has also increased from 19%          for firms in other industries.                  ­microbusinesses, minority-owned firms,
in 2015 to 35% in 2017.
                                                                                                       women-owned firms, and self-employed
                                                      Firms most often addressed financial chal-
However, applicants to online lenders cited                                                            individuals (nonemployer firms). Future
                                                      lenges by using personal funds—67% of
challenges with high interest rates and un-                                                            reports will focus on the financing needs
                                                      business owners used personal finances to
favorable repayment terms more often than                                                              and experiences of some of these segments.
                                                      do so, and 39% took out additional debt.
applicants to other lenders. Applicants to
online lenders also remain the least satisfied
among applicants at all types of lenders.




3   https://www.sba.gov/sites/default/files/advocacy/SB-FAQ-2017-WEB.pdf

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                                                                         iv
PERFORMANCE


In 2017, employer firms reported stronger performance than in the
2016 survey.

EMPLOYER FIRM PERFORMANCE INDEX, 1,2 Prior 12 Months (% of employer firms)

                                                                                                                   31%                           Profitability
         30%
                                                                                                                                                 Revenue Growth
                                                                                                                                                 Employment Growth
                                                              27%
         29%                                                                                                       26%



                                                              21%

         18%                                                                                                       18%
                                                              17%

2015 Survey3                                             2016 Survey3                                         2017 Survey
    4
N = 3,549–3,583                                         N4=9,929–10,181                                       N4=8,062-8,393




EMPLOYER FIRM PERFORMANCE, 2017 Survey (% of employer firms)


PROFITABILITY, 5                                                REVENUE CHANGE,                                            EMPLOYMENT CHANGE,
End of 2016                                                     Prior 12 Months6                                           Prior 12 Months6
N=7,830                                                         N=7,983                                                    N=7,684


At a profit                                 57%                 Increased                            53%                   Increased                   35%

Break even            18%                                       No change           22%                                    No change                           49%

At a loss                24%                                    Decreased             25%                                  Decreased        16%




1       For revenue and employment growth, the index is the share reporting growth minus the share reporting a reduction. For profitability, it is the share
        profitable minus the share not profitable.
2       Approximately the second half of the prior year through the second half of the surveyed year.
3       In order to make time series comparisons, the survey data have been re-weighted to maintain consistency over time. Therefore, the values and observation counts here
        may differ slightly from past reports and the appendix file for this report, which uses a different weighting scheme. Please see p. 31 for more detail.
4       Questions were asked separately, thus the number of observations may differ slightly between questions.
5       Percentages may not sum to 100 due to rounding.
6       Prior 12 months. Approximately the second half of 2016 through the second half of 2017.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                       Source: Small Business Credit Survey, Federal Reserve Banks                 1
GROWTH EXPECTATIONS


In the 2017 survey, employer firm expectations for future growth
exceeded levels reported in prior surveys.

EMPLOYER FIRM EXPECTATIONS (% of employer firms)


REVENUE CHANGE, 1 Next 12 Months2                                                              EMPLOYMENT CHANGE, Next 12 Months2
N=8,073                                                                                         N=7,736


Will increase                                                   72%                            Will increase                                  48%

No change                19%                                                                   No change                                    46%

Will decrease             8%                                                                   Will decrease            6%




       29% of employer                                                        Growing firms are defined as those that:
                                                                               Increased revenues3
                                                                               Increased number of employees3
       firms are growing.                                                     P lan to increase or maintain number of employees2


N=7,444



EMPLOYER FIRM EXPECTATIONS INDEX, 4,5 Next 12 Months2                                         (% of employer firms)


                                                                                                               66%                           R
                                                                                                                                              evenue Growth
     63%                                                                                                                                     Expectations
                                                          61%
                                                                                                                                             E mployment Growth
                                                                                                                                             Expectations




                                                                                                               44%

     38%                                                  39%

2015 Survey                                          2016 Survey                                          2017 Survey
N6=3,597–3,608                                      N6=10,187–10,218                                      N6=8,116-8,484



1   Percentages may not sum to 100 due to rounding.
2   Expected change in approximately the second half of the surveyed year through the second half of the following year.
3   Prior 12 months. Approximately the second half of 2016 through the second half of 2017.
4   The index is the share reporting expected growth minus the share reporting a reduction.
5   In order to make time series comparisons, the survey data have been re-weighted to maintain consistency over time. Therefore, the values and observation counts
    here may differ slightly from past reports and the appendix file for this report, which uses a different weighting scheme. Please see p. 31 for more detail.
6   Questions were asked separately, thus the number of observations may differ slightly between questions.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                   Source: Small Business Credit Survey, Federal Reserve Banks            2
FINANCIAL CHALLENGES


64% of employer firms experienced financial challenges
in the prior 12 months.1,2

TYPES 2 OF FINANCIAL CHALLENGES, Prior 12 Months1                                                                                                          N=8,097
(% of employer firms)


Paying operating expenses                                                                               40%

Credit availability                                                                    30%

Debt payments                                                                    25%

Purchasing inventory
                                                                18%
to fulfill contracts

Other challenge                                        12%

Experienced no
                                                                                                36%
financial challenges



ACTIONS 2,3 TAKEN AS A RESULT OF FINANCIAL CHALLENGES, Prior 12 Months1		                                                                                  N=4,956
(% of employer firms reporting financial challenges)


Used personal funds                                                                                                                                        67%

Took out additional debt                                                                              39%

Cut staff, hours, and/or
                                                                                         33%
downsized operations
Made a late payment
                                                                                   28%
or did not pay

Other action                                              15%




1   Approximately the second half of 2016 through the second half of 2017.
2   Respondents could select multiple options.
3   Response option ‘unsure’ not shown in chart. See Appendix for more detail.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                 Source: Small Business Credit Survey, Federal Reserve Banks             3
FUNDING BUSINESS OPERATIONS


In 2017, a larger share of employer firms funded their business through
retained business earnings than in 2016.

PRIMARY FUNDING SOURCE 1,2                        (% of employer firms)


2015 Survey
N= 3,660
                                                                                                                  69%                         19%               12%


2016 Survey                                                                                                64%                           21%                    15%
N=10,151


2017 Survey                                                                                                       69%                         19%               11%
N=8,485



    Retained business earnings                 Personal funds             External financing



68% of employer firms have outstanding debt. N=8,081

AMOUNT OF DEBT, 2 at Time of Survey (% of employer firms with debt)                                                                                           N=5,546



           55% hold $100K or less,
            unchanged from 2016

                                           33%



       22%
                                                                                19%                                  18%


                                                                                                                                                           9%


      ≤$25K                           $25K–$100K                          $100K–$250K                           $250K–$1M                                >$1M

*Categories have been simplified for readability. Actual categories are: ≤$25K, $25,001K–$100K, $100,001K–$250K, $250,001K–$1M, >$1M.




1   In order to make time series comparisons, the survey data have been re-weighted to maintain consistency over time. Therefore, the values and observation counts
    here may differ slightly from past reports and the appendix file for this report, which uses a different weighting scheme. Please see p. 31 for more detail.
2   Percentages may not sum to 100 due to rounding.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                   Source: Small Business Credit Survey, Federal Reserve Banks              4
RELIANCE ON PERSONAL FINANCES


87% of employer firms rely on the owners’ personal credit scores
to obtain financing.

USE OF PERSONAL AND BUSINESS CREDIT SCORES                                            (% of employer firms)                                                   N=5,941




              13%                                                                                 50%                                                         37%



    Business score only               Owner's personal score only                 Both



COLLATERAL 1 USED TO SECURE OUTSTANDING DEBT                                            (% of employer firms with debt)                                       N=5,654



Personal guarantee                                                                                                                                            55%


Business assets                                                                                                                                 49%


Personal assets                                                                                           33%


Portions of future sales                   7%


None                                                         15%




1   Respondents could select multiple options. Response options ‘unsure’ and ‘other’ not shown in chart. See Appendix for more detail.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                    Source: Small Business Credit Survey, Federal Reserve Banks             5
DEMAND FOR FINANCING


The share of firms that applied for financing declined in the 2017 survey,
relative to prior surveys.

SHARE THAT APPLIED FOR FINANCING, 1                                                               REASONS FOR APPLYING 3,4                                        N = 3,514
Prior 12 Months2 (% of employer firms)                                                            (% of applicants)


    46%                                                                                           Expand business/
                                  45%                                                                                                                               59%
                                                                                                  new opportunity5
                                                                 40%
                                                                                                  Operating expenses                                     43%
 2015                            2016                            2017
Survey                          Survey                          Survey                            Refinance                                        26%
 N=3,660                        N=10,303                        N=8,597

                                                                                                  Other reason                               9%




TOTAL AMOUNT OF FINANCING SOUGHT                                    (% of applicants)                                                                             N = 3,434



                                             34%




                                                                                   20%
       21%

                                                                                                                         17%



                                                                                                                                                               8%



      ≤$25K                            $25K–$100K                           $100K–$250K                               $250K–$1M                               >$1M

*Categories have been simplified for readability. Actual categories are: ≤$25K, $25,001K–$100K, $100,001K–$250K, $250,001K–$1M, >$1M.




1   In order to make time series comparisons, the survey data have been re-weighted to maintain consistency over time. Therefore, the values and observation counts
    here may differ slightly from past reports and the appendix file for this report, which uses a different weighting scheme. Please see p. 31 for more detail.
2   Approximately the second half of the prior year through the second half of the surveyed year.
3   Respondents could select multiple options.
4   Respondents who selected ‘other’ were asked to explain their reason for applying. They often indicated that they were looking to start a business or to obtain a credit
    line in case they needed it.
5   Full answer choice is: ‘Expand business, pursue new opportunity, or replace capital assets.’

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                      Source: Small Business Credit Survey, Federal Reserve Banks                 6
FINANCING RECEIVED


46% of employer firms that applied for credit received all the
financing they sought.

TOTAL FINANCING RECEIVED 1,2,3,4                         (% of applicants)


2015 Survey
N= 1,645
                                                                                       48%                    15%                       17%                           20%


2016 Survey                                                                  40%                  15%                             21%                                 24%
N=4,739


2017 Survey                                                                        46%               12%                            20%                               23%
N=3,628



    All (100%)            Most (51%–99%)                  Some (1%–50%)                 None (0%)



Low credit risk applicants were more likely to obtain all the financing
sought, compared to medium or high credit risk applicants.

FINANCING RECEIVED BY CREDIT RISK OF FIRM 1,3,5                                        (% of applicants)



                                                                                                10%                                                    All (100%)
                                                      29%                                                                                              Most (51%–99%)
                                                                                                13%
                                                                                                                                                       Some (1%–50%)
            56%                                                                                                                                        None (0%)
                                                      16%                                       27%


            11%                                       28%

            16%                                                                                 50%
                                                      26%
            16%

      Low credit risk                        Medium credit risk                          High credit risk
           N=1,556                                    N=777                                    N=191




1   Percentages may not sum to 100 due to rounding.
2   In order to make time series comparisons, the survey data have been re-weighted to maintain consistency over time. Therefore, the values and observation counts
    here may differ slightly from past reports and the appendix file for this report, which uses a different weighting scheme. Please see p. 31 for more detail.
3   Share of financing received across all types of financing. Response option ‘unsure’ excluded from chart.
4   In the 2015 survey, the question was “How much of the TOTAL financing dollars your business applied for in the prior 12 months was approved?” In the 2016 and
    2017 surveys, the question was “How much of the TOTAL financing dollars that your business sought in the prior 12 months did you obtain?”
5   Self-reported business credit score or personal credit score, depending on which is used to obtain financing for their business. If the firm uses both, the higher risk
    rating is used. ‘Low credit risk’ is a 80-100 business credit score or 720+ personal credit score. ‘Medium credit risk’ is a 50–79 business credit score or a 620–719
    personal credit score. ‘High credit risk’ is a 1–49 business credit score or a
FINANCING SHORTFALLS


23% of applicants did not obtain any financing.
54% of applicants had a financing shortfall, meaning they obtained less
than the amount for which they applied.

REASONS FOR CREDIT DENIAL 1                        (% of applicants with financing shortfall)                                                                  N=832



Insufficient credit history                                                                                                                                    36%

Insufficient collateral                                                                                                                                    35%

Too much debt already                                                                                                                     30%

Low credit score                                                                                                               27%

Weak business performance                                                                                     22%

Other                                                   7%




Funding gaps were most acute for firms seeking $25K-$250K.

FINANCING RECEIVED BY AMOUNT SOUGHT                                     (% of applicants)


≤$25K
                                                                                                54%         9%                   16%                           21%
N=559


$25K–$100K
N=1,029
                                                                          42%                   13%                            23%                             22%


$100K–$250K                                                               42%                    14%                           22%                             22%
N=684


>$250K
                                                                                            53%               13%                      17%                     17%
N=1,099



    All (100%)           Most (51%–99%)               Some (1%–50%)                  None (0%)

*Categories have been simplified for readability. Actual categories are: ≤$25K, $25,001K–$100K, $100,001K–$250K, >$250K.




1   Respondents could select multiple options.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                     Source: Small Business Credit Survey, Federal Reserve Banks           8
APPLICATIONS


Small employer firms most frequently applied for loans and lines of credit.

FINANCING AND CREDIT PRODUCTS SOUGHT 1,2                                      (% of applicants)                                                                 N=3,522



Loan or line of credit                                                                                                                                          87%

Credit card                                                           27%

Leasing                                      10%

Trade                                        9%

Equity investment                           8%

Merchant cash advance                     7%

Factoring                              4%




APPLICATION RATE FOR LOANS/LINES OF CREDIT 1                                         (% of loan/line of credit applicants)                                      N=2,875



Business loan                                                                                         47%

Line of credit                                                                                 43%

SBA loan or line of credit                                           26%

Auto or equipment loan                                16%

Personal loan                                   12%

Other                                       8%

Mortgage                                  7%

Home equity line of credit             4%




1   Respondents could select multiple options.
2   Response options 'other' and 'unsure' not shown. See Appendix for more detail.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                      Source: Small Business Credit Survey, Federal Reserve Banks             9
LOAN/LINE OF CREDIT SOURCES


Banks are the most common source that small firms apply to for credit.

CREDIT SOURCES APPLIED TO 1                         (% of loan/line of credit and cash advance applicants)                                                      N=2,818



       48%                           47%




                                                                    24%

                                                                                                                                                            18%


                                                                                                 9%
                                                                                                                               5%

    Large bank2                  Small bank                  Online lender3                 Credit union                      CDFI4                    Other lender5



The share of applicants who seek loans, lines of credit, or cash advances
from online lenders has grown over time.

BORROWERS WHO APPLIED TO ONLINE LENDERS 3,6                                          (% of loan/line of credit and cash advance applicants)


                                                                                                                24%




                                                           21%
      20%

2015 Survey                                           2016 Survey                                            2017 Survey
     N=1,541                                              N=3,868                                              N=2,920




1   Respondents could select multiple options.
2   Respondents were provided a list of large banks (those with at least $10B in total deposits) operating in their state.
3   ‘Online lenders’ are defined as nonbank alternative and marketplace lenders, including Lending Club, OnDeck, CAN Capital, and PayPal Working Capital.
4   Community development financial institutions (CDFIs) are financial institutions that provide credit and financial services to underserved markets and populations.
    CDFIs are certified by the CDFI Fund at the U.S. Department of the Treasury.
5   Respondents who selected ‘other’ were asked to describe the source. They most frequently cited auto/equipment dealers, farm-lending institutions, friends/family/
    owner, nonprofit organizations, private investors, and government entities.
6   In order to make time series comparisons, the survey data have been re-weighted to maintain consistency over time. Therefore, the values and observation counts
    here may differ slightly from past reports and the appendix file for this report, which uses a different weighting scheme. Please see p. 31 for more detail.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                     Source: Small Business Credit Survey, Federal Reserve Banks              10
LOAN/LINE OF CREDIT SOURCES (CONTINUED)


Applicants tended to choose a lender based on their perceived chance
of being funded, rather than on product cost.

FACTORS INFLUENCING WHERE FIRMS APPLY 1,2                                         (% of loan/line of credit and cash advance applicants)



                                                                                                          70%
               62%

                                                                                                                                                                       47%
43% 46%
                               37%                                                                 34%
                                      33%                                                                                                31%
                                                             29% 27%                       28%                            26% 24%
                                              20%                                                                                                       18%
                                                                            15%                                                                                 14%

Chance of being             Cost or interest rate           Recommendation                Speed of decision            Flexibility of product              No collateral
    funded                                                     or referral                                                                                  required

     Large bank3 (N=1,144)             Small bank (N=1,277)             Online lender4 (N=428)



Medium/high credit risk applicants were more likely to apply to an online
lender than low credit risk applicants.

CREDIT SOURCES APPLIED TO BY CREDIT RISK OF FIRM 1,5,6                                               (% of loan/line of credit and cash advance applicants)



    51%     49%                 48%        47%
                                                                         40%

                                                                                               8%       10%                             8%                            23%
                                                               16%                                                            4%                            14%

    Large bank3                  Small bank                   Online lender4                  Credit union                       CDFI7                          Other8

     Low credit risk (N=1,345)             Medium/high credit risk (N=856)




1   Respondents could select multiple options.
2   Response option ‘other' not shown. See Appendix for more detail.
3   Respondents were provided a list of large banks (those with at least $10B in total deposits) operating in their state.
4   ‘Online lenders’ are defined as nonbank alternative and marketplace lenders, including Lending Club, OnDeck, CAN Capital, and PayPal Working Capital.
5   Self-reported business credit score or personal credit score, depending on which is used to obtain financing for their business. If the firm uses both, the higher risk
    rating is used. ‘Low credit risk’ is a 80-100 business credit score or 720+ personal credit score. ‘Medium credit risk’ is a 50–79 business credit score or a 620–719
    personal credit score. ‘High credit risk’ is a 1–49 business credit score or a
LOAN/LINE OF CREDIT APPROVAL


Loan/line of credit and cash advance applicants in the 2017 survey reported
greater success than applicants in previous surveys.

OUTCOME OF LOAN/LINE OF CREDIT AND CASH ADVANCE APPLICATIONS1 (% of loan/line of credit and cash advance applicants)

                                                                                                               58%                           A
                                                                                                                                              ll approved (100%)
     53%                                                  53%                                                                                N
                                                                                                                                              one approved (0%)




                                                          24%
     22%                                                                                                       22%

2015 Survey                                          2016 Survey                                          2017 Survey
    N=1,481                                              N=3,757                                              N=2,787




The share of applicants approved for at least some financing was highest
for auto and equipment loans and merchant cash advances.

APPROVAL RATE BY TYPE OF LOAN/LINE OF CREDIT OR CASH ADVANCE2,3                                                  (% of loan/line of credit and cash advance applicants)



Auto or equipment loan (N=453)                                                                                                                                 82%

Merchant cash advance (N=195)                                                                                                                              79%

Line of credit (N=1,217)                                                                                                                     69%

Mortgage (N= 180)                                                                                                                        66%

Business loan (N=1,243)                                                                                                            62%

SBA loan or line of credit (N=536)                                                                                      54%

Personal loan (N=267)                                                                                             50%

Home equity line of credit (N=79)                                                                              48%




1   In order to make time series comparisons, the survey data have been re-weighted to maintain consistency over time. Therefore, the values and observation counts
    here may differ slightly from past reports and the appendix file for this report, which uses a different weighting scheme. Please see p. 31 for more detail.
2   Percent of loan/line of credit and cash advance applications for each product type that were approved for at least some credit.
3   Response option ‘other’ not shown in chart. See Appendix for more detail.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                   Source: Small Business Credit Survey, Federal Reserve Banks                12
LOAN/LINE OF CREDIT APPROVAL (C0NTINUED)


Loan/line of credit and cash advance applicants had greatest success
obtaining financing at CDFIs, small banks, and online lenders.

APPROVAL RATE BY SOURCE OF LOAN/LINE OF CREDIT OR CASH ADVANCE 1,2
(% of loan/line of credit and cash advance applicants)


Large bank3                                                                                                    56%
N=1,225

Small bank                                                                                                                          68%
N=1,346

Online lender4                                                                                                                                  75%
N=517

Credit union                                                                                              53%
N=216

CDFI5
N=115
                                                                                                                                                                      88%




Medium/high credit risk applicants had greatest success at online lenders.

APPROVAL RATE BY CREDIT RISK OF FIRM AND SOURCE OF LOAN/LINE OF CREDIT OR CASH ADVANCE1,2,6,7
(% of loan/line of credit and cash advance applicants)



                                                    77%                                            79%                                           76%
                                                                                                                     71%
      67%


                                                                      47%
                        35%
                                                                                                                                                                   26%



          Large bank3                                    Small bank                                   Online lender4                                 Credit union

    Low credit risk (N=85–673)               Medium/high credit risk (N=87–390)


1   Percent of loan/line of credit and cash advance applications at each source that were approved for at least some credit.
2   Response option 'other' not shown. See Appendix for more detail.
3   Respondents were provided a list of large banks (those with at least $10B in total deposits) operating in their state.
4   ‘Online lenders’ are defined as nonbank alternative and marketplace lenders, including Lending Club, OnDeck, CAN Capital, and PayPal Working Capital.
5   Community development financial institutions (CDFIs) are financial institutions that provide credit and financial services to underserved markets and populations.
    CDFIs are certified by the CDFI Fund at the U.S. Department of the Treasury.
6   Response option “CDFI” not shown due to insufficient sample size.
7   Self-reported business credit score or personal credit score, depending on which is used to obtain financing for their business. If the firm uses both, the higher risk
    rating is used. ‘Low credit risk’ is a 80-100 business credit score or 720+ personal credit score. ‘Medium credit risk’ is a 50–79 business credit score or a 620–719
    personal credit score. ‘High credit risk’ is a 1–49 business credit score or a
LENDER SATISFACTION


Bank applicants were most dissatisfied with wait times for credit decisions.
Online lender applicants were most dissatisfied with high interest rates.

CHALLENGES WITH LENDERS, 1 Select Lenders
(% of loan/line of credit and cash advance applicants)


                                                                           52%                                                                              55%
                                                                                                                                                    41%
                                                                                                                                                                    37%
33%                                                                                                                                   33%
         25% 10%             28%                                   12%                                                10% 9%
                                     24% 10%                                                     9%
                                                           20%
                                                                                        14%              15%

Long wait for credit Difficult application                 High interest rate         Lack of transparency              Unfavorable                   No challenges
decision or funding        process                                                                                    repayment terms

    Large bank2 (N=1,130)            Small bank (N=1,237)            Online lender3 (N=423)



Borrower satisfaction is consistently highest with CDFIs, credit unions, and
small banks, but satisfaction with online lenders has increased.

NET LENDER SATISFACTION OVER TIME5
(% satisfied minus % dissatisfied, among loan/line of credit and cash advance applicants approved for at least some financing)


                                                           77%                                                   76%                      Large
                                                                                                                                               bank2 (N=443–1,118)
     75%
                                                                                                                                          S
                                                                                                                                           mall bank (N=640–1,268)
                                                           75%                                                   74%                      O
                                                                                                                                           nline lender3 (N=144–340)
                                                           75%                                                   73%                      C
                                                                                                                                           redit union (N=48–113)
     66%
                                                                                                                                          C
                                                                                                                                           DFI4 (N=84–90)
     47%                                                   47%                                                   49%


                                                                                                                 35%

                                                           26%
     19%

2015 Survey                                           2016 Survey                                           2017 Survey



1   Respondents could select multiple options. Response option ‘other’ not shown in chart. See Appendix for more detail.
2   Respondents were provided a list of large banks (those with at least $10B in total deposits) operating in their state.
3   ‘Online lenders’ are defined as nonbank alternative and marketplace lenders, including Lending Club, OnDeck, CAN Capital, and PayPal Working Capital.
4   Community development financial institutions (CDFIs) are financial institutions that provide credit and financial services to underserved markets and populations.
    CDFIs are certified by the CDFI Fund at the U.S. Department of the Treasury.
5   In order to make time series comparisons, the survey data have been re-weighted to maintain consistency over time. Therefore, the values and observation counts
    here may differ slightly from past reports and the appendix file for this report, which uses a different weighting scheme. Please see p. 31 for more detail.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                     Source: Small Business Credit Survey, Federal Reserve Banks              14
NONAPPLICANTS AND CREDIT USE



DEMAND FOR FINANCING                                             N = 8,169                          TOP REASON FOR NOT APPLYING                                      N = 4,495
(% of employer firms)                                                                               (% of nonapplicants)



                                                                                                         50% Sufficient financing




     40%                   Prior                 60%
                        12 Months1               Did not
     Applied                                                                                                  26% Debt averse
                                                  apply



                                                                                                             13% Discouraged2

                                                                                                                  11% Other3




PERFORMANCE OF APPLICANTS AND NONAPPLICANTS                                                    (% of employer firms)



                                                                                                                    76%

                      61%                                                                          60%
     52%
                                                                                                                                                                   46%
                                                    35%
                                                                     25%                                                                          22%


    Operated at a profit4                                 Growing5                                   Low credit risk6                          No financial challenges

    Applicants (N7=2,575–3,526)              Nonapplicants (N7=2,774–4,571)




1   Approximately the second half of 2016 through the second half of 2017.
2   Discouraged firms are those that did not apply for financing because they believed they would be turned down.
3   Response option ‘other’ includes ‘credit cost was too high,’ ‘application process was too difficult or confusing,’ and ‘other.’ See Appendix for more detail.
4   At the end of 2016.
5   Firms that increased revenues and employees in the prior 12 months and that plan to increase or maintain their number of employees.
6   Self-reported business credit score or personal credit score, depending on which is used to obtain financing for their business. If the firm uses both, the higher risk
    rating is used. ‘Low credit risk’ is a 80-100 business credit score or 720+ personal credit score. ‘Medium credit risk’ is a 50–79 business credit score or a 620–719
    personal credit score. ‘High credit risk’ is a 1–49 business credit score or a
FINANCIAL CHALLENGES:
NONAPPLICANTS AND APPLICANTS


54% of nonapplicants experienced financial challenges in the
prior 12 months, compared to 78% of applicants.

TYPES OF FINANCIAL CHALLENGES, 1 Prior 12 Months2
(% of employer firms)



    47%                        47%                                                                                                                    46%

           35%                                               36%

                                                                                   26%
                                                                                                                                            22%
                                         18%                           18%
                                                                                            13%                14%
                                                                                                                         10%

Paying operating            Credit availability            Debt payments            Purchasing               Other challenge                 No financial
   expenses                                                                      inventory to fulfill                                        challenges
                                                                                     contracts

    Applicants (N=3,526)            Nonapplicants (N=4,571)



ACTIONS TAKEN AS A RESULT OF FINANCIAL CHALLENGES,1,3 Prior 12 Months2
(% of employer firms with financial challenges)



                                                                                                                                                      69%
Used personal funds
                                                                                                                                              65%

Cut staff, hours, and/or                                                            33%
downsized operations                                                                 34%

Made a late payment                                                                  34%
or did not pay                                                          23%

                                                                                                                            55%
Took out additional debt
                                                                        23%

                                                     13%
Other action
                                                            17%


    Applicants (N=2,616)            Nonapplicants (N=2,340)




1   Respondents could select multiple options.
2   Approximately the second half of 2016 through the second half of 2017.
3   Response option ‘unsure’ not shown in chart. See Appendix for more detail.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                            Source: Small Business Credit Survey, Federal Reserve Banks         16
NONAPPLICANT DEBT HOLDINGS


Nonapplicants commonly use credit cards or loans/lines of credit—but at
lower rates than applicants.

USE OF FINANCING AND CREDIT, 1 Products used on a “regular basis”
(% of employer firms)


                                                                                                                                   60%
Credit card
                                                                                                       44%
                                                                                                                                                            74%
Loan or line of credit
                                                                                              38%
                                                          17%
Trade credit
                                                10%
                                                        16%
Leasing
                                          7%
                                                  13%
Equity investment
                                        6%
                                        6%
Factoring
                                        2%
                                          7%
Merchant cash advance
                                         2%
Business does not use                   6%
external financing                                                                 31%


    Applicants (N=3,541)             Nonapplicants (N=4,574)



LOAN/LINE OF CREDIT PRODUCTS HELD BY NONAPPLICANTS1,2                                                                                                       N=1,544
(% of nonapplicants with loan/line of credit)



Line of credit                                                                                    41%

Business loan                                                                  29%

SBA loan or line of credit                                17%

Personal loan                                         14%

Auto or equipment loan                          10%

Mortgage                                    8%

Home equity line of credit                  8%



1   Respondents could select multiple options.
2   Response options ‘other’ and ‘unsure’ not shown in chart. See Appendix for more detail.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                  Source: Small Business Credit Survey, Federal Reserve Banks             17
NONAPPLICANT LOAN/LINE OF CREDIT SOURCES


Like recent applicants, nonapplicants with debt are most likely to hold
products that were originated at banks.

SOURCES OF LOANS, LINES OF CREDIT, AND CASH ADVANCES 1                                                                                                           N=1,557
(% of nonapplicants with loan/line of credit or cash advance)



       42%                          40%

                                                                                                                                                            19%

                                                                   6%                              8%
                                                                                                                                4%

    Large bank2                 Small bank                   Online lender3                Credit union                        CDFI4                   Other lender5



Similar to recent applicants, nonapplicants with debt were most often
satisfied with their experiences at credit unions, small banks, and CDFIs.

NET LENDER SATISFACTION 6
(% satisfied minus % dissatisfied, among nonapplicants with loan/line of credit or cash advance)



                                                                                                                        81%
                                            75%
                                                                                                                                                            67%

       52%
                                                                                 43%




    Large bank2                         Small bank                         Online lender3                          Credit union                             CDFI4
       N=653                                N=657                                 N=73                                  N=73                                 N=50




1   Respondents could select multiple options.
2   Respondents were provided a list of large banks (those with at least $10B in total deposits) operating in their state.
3   ‘Online lenders’ are defined as nonbank alternative and marketplace lenders, including Lending Club, OnDeck, CAN Capital, and PayPal Working Capital.
4   Community development financial institutions (CDFIs) are financial institutions that provide credit and financial services to underserved markets and populations.
    CDFIs are certified by the CDFI Fund at the U.S. Department of the Treasury.
5   Respondents who selected ‘other’ were asked to describe the source. They most frequently cited auto/equipment dealers, farm-lending institutions, friends/family/
    owner, nonprofit organizations, and private investors.
6   Response option ‘other’ not shown in chart. See Appendix for more detail.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                       Source: Small Business Credit Survey, Federal Reserve Banks             18
FIRM SIZE: PERFORMANCE AND CHALLENGES



REVENUE SIZE OF FIRM                                               N=7,763                        PERFORMANCE INDEX BY REVENUE SIZE
(% of employer firms)                                                                             OF FIRM, 1 Prior 12 Months2 (% of employer firms)
              4%
                                                          ≤$100K
                                                                                                               55
                                                          $100K–$1M
                        18%
                                                          $1M–$10M
     27%                                                                                                                         29
                                                          >$10M                                      23                                   22               19   17

                     51%                                                                             Profitability           Revenue growth           Employment growth


                                                                                                      ≤$1M (N=4,070–4,239)              >$1M (N=3,301–3,453)
*Categories have been simplified for readability. Actual categories are:
  ≤$100K, $100,001K–$1M, $1,000,001M–$10M, >$10M.




SHARE OF FIRMS WITH FINANCIAL CHALLENGES BY REVENUE SIZE OF FIRM, Prior 12 Months2
(% of employer firms)


                                                                                                                                                 ≤$100K (N=1,129)
                                                                                                                                                 $100K–$1M (N=3,184)
                                                                                                                                                 $1M–$10M (N=2,778)
         74%                           67%                         54%                    42%
                                                                                                                                                 >$10M (N=672)




Smaller firms reported experiencing all types of financial challenges at
higher rates than larger firms.

TYPES OF FINANCIAL CHALLENGES BY REVENUE SIZE OF FIRM, 3 Prior 12 Months2
(% of employer firms)



52%
         42%
                  32%                           36% 32%                                                                                                    13% 11%
                                                                 25%                          30% 29%                   8%
                                                                                                              19%                           24% 20%
                          18%                                               18%
     Paying operating                                Credit availability                          Making payments                          Purchasing inventory or
        expenses                                                                                      on debt                             supplies to fulfill contracts

    ≤$100K (N=1,129)             $100K–$1M (N=3,184)                  $1M–$10M (N=2,778)                >$10M (N=672)

1   For revenue and employment growth, the index is the share reporting growth minus the share reporting a reduction. For profitability, it is the share
    profitable minus the share not profitable.
2   Approximately the second half of 2016 through the second half of 2017.
3   Respondents could select multiple options. Response option ‘other’ not shown in chart. See Appendix for more detail.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                      Source: Small Business Credit Survey, Federal Reserve Banks             19
FIRM SIZE: DEMAND FOR FINANCING


Smaller-revenue firms applied for financing less frequently than larger-
revenue firms.

SHARE THAT APPLIED FOR FINANCING BY REVENUE SIZE OF FIRM, Prior 12 Months1
(% of employer firms)


                                                                                                                                                    ≤$100K (N=1,134)
                                                                                                                                                    $100K–$1M (N=3,207)
      34%                      39%                       44%                        49%                                                             $1M–$10M (N=2,800)
                                                                                                                                                    >$10M (N=682)




REASONS FOR APPLYING BY REVENUE SIZE OF FIRM 2                                               (% of applicants)



                                     66%
    57%       59%         60%
                                                                   54%
                                                                               42%         41%                                                                      17%
                                                                                                      30%                                       29%         26%
                                                                                                                                    24%

Expand business/new opportunity                                            Operating expenses                                                     Refinance


    ≤$100K (N=406)              $100K–$1M (N=1,350)                   $1M–$10M (N=1,282)                 >$10M (N=337)



TOP REASON FOR NOT APPLYING BY REVENUE SIZE OF FIRM                                                       (% of nonapplicants)




             31%
                                                             48%
                                                                                                             63%
                                                                                                                                                            75%
             34%
                                                             29%
             21%                                                                                             19%
                                                             13%                                              5%                                            12%
             14%                                             10%                                             13%                                             7%
                                                                                                                                                             6%
           ≤$100K                                       $100K–$1M                                       $1M–$10M                                           >$10M
             N=706                                          N=1,821                                        N=1,460                                          N=327


    Sufficient financing               Debt averse              Discouraged3               Other4


1   Approximately the second half of 2016 through the second half of 2017.
2   Respondents could select multiple options. Response option ‘other’ not shown in chart. See Appendix for more detail.
3   Discouraged firms are those that did not apply for financing because they believed they would be turned down.
4   Response option ‘other’ includes ‘credit cost was too high,’ ‘application process was too difficult or confusing,’ and ‘other.’ See Appendix for more detail.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                         Source: Small Business Credit Survey, Federal Reserve Banks          20
FIRM SIZE: CREDIT OUTCOMES


Smaller revenue firms reported financing gaps more often than larger firms.

FINANCING SHORTFALLS BY REVENUE SIZE OF FIRM, Share receiving less than the amount sought
(% of applicants)


                                                                                                                                               ≤$100K (N=397)
                                                                                                                                               $100K–$1M (N=1,325)
       70%                    57%                  44%               26%                                                                       $1M–$10M (N=1,262)
                                                                                                                                               >$10M (N=328)




LOAN/LINE OF CREDIT AND CASH                                                                     LOAN/LINE OF CREDIT AND CASH
ADVANCE SOURCES APPLIED TO                                                                       ADVANCE APPROVALS BY SOURCE
BY REVENUE SIZE OF FIRM 1,2                                                                      AND REVENUE SIZE OF FIRM
(% of loan/line of credit and cash advance applicants)                                           (% of loan/line of credit and cash advance applicants)


                                          54%                                                                                   32%
Large bank3                           44%                                                        Large bank3                           45%
                                        50%                                                                                                               76%
                                         52%                                                                                                                       93%
                                      45%                                                                                           39%
Small bank                            45%                                                        Small bank                                        66%
                                        52%                                                                                                               78%
                                       50%                                                                                                                   87%
                           32%                                                                                                                  60%
Online lender    4       27%                                                                     Online lender    4,6                                     76%
                       19%                                                                                                                                      88%
                        7%
                      17%                                                                            ≤$100K (N=93–138)                       $1M–$10M (N=147–565)
Credit union             10%                                                                         $100K–$1M (N=255–481)                   >$10M (N=128–136)
                       4%
                       4%
                                                                                                 *Other sources not shown due to insufficient sample size.
                        5%
CDFI5                   6%
                       3%
                      1%

    ≤$100K (N=309)                         $1M–$10M (N=1,040)
    $100K–$1M (N=1,094)                    >$10M (N=265)


1   Respondents could select multiple options.
2   Response option ‘other’ not shown in chart. See Appendix for more detail.
3   Respondents were provided a list of large banks (those with at least $10B in total deposits) operating in their state.
4   ‘Online lenders’ are defined as nonbank alternative and marketplace lenders, including Lending Club, OnDeck, CAN Capital, and PayPal Working Capital.
5   Community development financial institutions (CDFIs) are financial institutions that provide credit and financial services to underserved markets and populations.
    CDFIs are certified by the CDFI Fund at the U.S. Department of the Treasury.
6   Firms with >$10M in annual revenue not shown due to insufficient sample size.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                     Source: Small Business Credit Survey, Federal Reserve Banks             21
FIRM AGE: PERFORMANCE AND CHALLENGES



AGE OF FIRM                                                       N=8,169                          PERFORMANCE INDEX BY AGE OF FIRM, 1
(% of employer firms)                                                                              Prior 12 Months2 (% of employer firms)

                                                         0–2 years
                                                                                                                 51             54
                                                         3–5 years
        23%               20%                                                                              41
                                                         6–10 years                                                                                        36
                                                         11–15 years                                                                         12                         8
                                                                                                     3                                17                          14
                               13%                       16–20 years
    9%
                                                         21+ years                                   Profitability                Revenue                  Employment
         14%                                                                                                                       growth                    growth
                        20%
                                                                                                       0
                                                                                                        –5 years                6
                                                                                                                                  –15 years                1
                                                                                                                                                             6+ years
                                                                                                       (N=1,907–2,101)           (N=2,157–2,264)            (N=3,486–3,659)




SHARE OF FIRMS WITH FINANCIAL CHALLENGES BY AGE OF FIRM, Prior 12 Months2
(% of employer firms)


                                                                                                                                                  0–5 years (N=2,131)
                                                                                                                                                  6–15 years (N=2,291)
        71%                      66%                    53%                                                                                       16+ years (N=3,675)




Financial challenges, especially paying operating expenses, were
common across all age segments but more pronounced among startups
(0-5 year-old firms).

TYPES OF FINANCIAL CHALLENGES BY AGE OF FIRM, 3 Prior 12 Months2
(% of employer firms)



    46%
             42%                                 39%
                        32%                                 31%                                29%         28%
                                                                       20%                                                                    23%
                                                                                                                      19%                                19%
                                                                                                                                                                      12%
     Paying operating                               Credit availability                           Making payments                           Purchasing inventory or
        expenses                                                                                      on debt                              supplies to fulfill contracts

    0
     –5 years (N=2,131)            6
                                     –15 years (N=2,291)              1
                                                                        6+ years (N=3,675)

1   For revenue and employment growth, the index is the share reporting growth minus the share reporting a reduction. For profitability, it is the share profitable
    minus the share not profitable.
2   Approximately the second half of 2016 through the second half of 2017.
3   Respondents could select multiple options. Response option ‘other’ not shown in chart. See Appendix for more detail.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                       Source: Small Business Credit Survey, Federal Reserve Banks                22
FIRM AGE: DEMAND FOR FINANCING



SHARE THAT APPLIED FOR FINANCING BY AGE OF FIRM, Prior 12 Months1
(% of employer firms)


                                                                                                                                                      0
                                                                                                                                                       –5 years (N=2,149)
                                                                                                                                                      6
                                                                                                                                                       –15 years (N=2,302)
        45%                        41%                       34%                                                                                      1
                                                                                                                                                       6+ years (N=3,718)




REASONS FOR APPLYING BY AGE OF FIRM 2                                      (% of applicants)




    60%             61%
                                   55%
                                                                     47%             44%
                                                                                                    37%
                                                                                                                                      25%             27%           25%

Expand business/new opportunity                                            Operating expenses                                                     Refinance


    0
     –5 years (N=1,044)             6
                                      –15 years (N=1,060)              1
                                                                         6+ years (N=1,410)



Among nonapplicants, younger firms were less likely to report having
sufficient financing and more likely to be discouraged.

TOP REASON FOR NOT APPLYING BY AGE OF FIRM                                             (% of nonapplicants)




                    41%                                                              44%
                                                                                                                                                      62%

                    28%                                                              28%
                                                                                                                                                      24%
                    19%                                                              14%
                                                                                     14%                                                            6%
                    12%                                                                                                                             8%
                0–5 years                                                       6–15 years                                                        16+ years
                   N=1,063                                                          N=1,202                                                          N=2,230


    Sufficient financing               Debt averse              Discouraged3               Other4


1   Approximately the second half of 2016 through the second half of 2017.
2   Respondents could select multiple options. Response option ‘other’ not shown in chart. See Appendix for more detail.
3   Discouraged firms are those that did not apply for financing because they believed they would be turned down.
4   Response option ‘other’ includes ‘credit cost was too high,’ ‘application process was too difficult or confusing,’ and ‘other.’ See Appendix for more detail.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                         Source: Small Business Credit Survey, Federal Reserve Banks              23
FIRM AGE: CREDIT OUTCOMES


Younger firms were more likely to report financing gaps than
more mature firms.

FINANCING SHORTFALLS BY AGE OF FIRM, Share receiving less than the amount sought
(% of applicants)


                                                                                                                                               0
                                                                                                                                                –5 years (N=1,049)
                                                                                                                                               6
                                                                                                                                                –15 years (N=1,038)
        61%                    55%                   40%                                                                                       1
                                                                                                                                                6+ years (N=1,385)




LOAN/LINE OF CREDIT AND CASH ADVANCE                                                             LOAN/LINE OF CREDIT AND CASH ADVANCE
SOURCES APPLIED TO BY AGE OF FIRM 1,2                                                            APPROVALS BY SOURCE AND AGE OF FIRM
(% of loan/line of credit and cash advance applicants)                                           (% of loan/line of credit and cash advance applicants)


                                           51%                                                                                            45%
Large bank3                               49%                                                    Large bank3                                 55%
                                        44%                                                                                                                  73%
                                         46%                                                                                                     57%
Small bank                               47%                                                     Small bank                                         67%
                                          48%                                                                                                                      85%
                             27%                                                                                                                          70%
                                                                                                 Online lender4
Online lender4               27%                                                                                                                            78%
                      16%                                                                                                                                     82%
                    13%
Credit union           8%                                                                            0
                                                                                                      –5 years (N=220–386)
                      7%                                                                             6
                                                                                                      –15 years (N=156–386)
                        8%                                                                           1
                                                                                                      6+ years (N=141–568)
CDFI5                  3%
                       3%                                                                        *Other sources not shown due to insufficient sample size.


    0
     –5 years (N=859)
    6
     –15 years (N=845)
    1
     6+ years (N=1,114)




1   Respondents could select multiple options.
2   Response option ‘other’ not shown in chart. See Appendix for more detail.
3   Respondents were provided a list of large banks (those with at least $10B in total deposits) operating in their state.
4   ‘Online lenders’ are defined as nonbank alternative and marketplace lenders, including Lending Club, OnDeck, CAN Capital, and PayPal Working Capital.
5   Community development financial institutions (CDFIs) are financial institutions that provide credit and financial services to underserved markets and populations.
    CDFIs are certified by the CDFI Fund at the U.S. Department of the Treasury.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                     Source: Small Business Credit Survey, Federal Reserve Banks             24
INDUSTRY: PERFORMANCE



INDUSTRY          (% of employer firms)                                                                                                                           N=8,169


                                                                                                                                              P
                                                                                                                                               rofessional services
                                                                                                                                              and real estate
                    10%                                                                                                                       N
                                                                                                                                               on-manufacturing
                                          19%                                                                                                 goods production and
        11%                                                                                                                                   associated services
                                                                                                                                              B
                                                                                                                                               usiness support and
                                                                                                                                              consumer services
                                                                                                                                              R
                                                                                                                                               etail
      13%                                        18%                                                                                          H
                                                                                                                                               ealthcare and
                                                                                                                                              education
                                                                                                                                              L eisure and hospitality
               14%                                                                                                                            O
                                                                                                                                               ther
                                   15%




PERFORMANCE INDEX BY INDUSTRY, 1 Prior 12 Months2 (% of employer firms)


41% 40%
                 38%

                                                                                       33%                                                  32%
                         29%
                                                              26% 26% 27%
                                                                                                        24%
                                  21%                                                          22%
                                                                                                                            18% 19%                  19%
                                                                                                                                                                    16%

                                                                                                                                                            11%

                                           5%

                 Profitability                                              Revenue growth                                             Employment growth

    N
     on-manufacturing goods production                                           H
                                                                                   ealthcare and education (N=638–665)                       R
                                                                                                                                               etail (N=706–729)
    and associated services (N=1,500–1,581)
                                                                                  B
                                                                                   usiness support and consumer                              L eisure and hospitality
    P
     rofessional services and real estate (N=1,794–1,859)                        services (N=947–996)                                        (N=502–543)




1   For revenue and employment growth, the index is the share reporting growth minus the share reporting a reduction. For profitability, it is the share
    profitable minus the share not profitable.
2   Approximately the second half of 2016 through the second half of 2017.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                      Source: Small Business Credit Survey, Federal Reserve Banks               25
INDUSTRY: FINANCIAL CHALLENGES



SHARE OF FIRMS WITH FINANCIAL CHALLENGES BY INDUSTRY, Prior 12 Months1 (% of employer firms)




         73%                           67%                           67%                       64%                         63%                          61%


      Leisure and            Business support and                    Retail                 Healthcare             Non-manufacturing               Professional
      hospitality             consumer services                      N=743                 and education          goods production and             services and
          N=549                        N=1,009                                                  N=678              associated services              real estate
                                                                                                                            N=1,606                     N=1,884




Financial challenges, especially paying operating expenses, were common
across all industries, but most prevalent for leisure and hospitality firms.

TYPES OF FINANCIAL CHALLENGES BY INDUSTRY, 1 Prior 12 Months2 (% of employer firms)


48%
      45%
            43%
                  41%
                        38%                                                             38%
                              35%                                         34%
                                            33% 32%
                                                              30% 29%                                                                                   29%
                                                                                                          28%         27%
                                                        26%                                   26%
                                                                                                    24%
                                                                                                                                      22%                           21%
                                                                                                                19%                         20%
                                                                                                                                                  15%
                                                                                                                                                              11%


       Paying operating                            Credit availability                   Making payments on debt                       Purchasing inventory or
          expenses                                                                                                                    supplies to fulfill contracts

    L eisure and hospitality (N=549)                      H
                                                            ealthcare and education                     P
                                                                                                          rofessional services and real estate (N=1,884)
                                                           (N=678)
    B
     usiness support and consumer                                                                       N
                                                                                                          on-manufacturing goods production and
    services (N=1,009)                                     R
                                                            etail (N=743)                               associated services (N=1,606)




1   Respondents could select multiple options. Response option ‘other’ not shown in chart. See Appendix for more detail.
2   Approximately the second half of 2016 through the second half of 2017.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                    Source: Small Business Credit Survey, Federal Reserve Banks               26
INDUSTRY: DEMAND FOR FINANCING



SHARE THAT APPLIED FOR FINANCING BY INDUSTRY, Prior 12 Months1 (% of employer firms)




          50%                           41%                         41%                         41%                          40%                      34%



 Non-manufacturing              Business support                    Retail                  Leisure and               Healthcare and Professional
goods production and             and consumer                        N=747                   hospitality                 education     services and
 associated services                services                                                     N=556                      N=683       real estate
          N=1,619                       N=1,014                                                                                                       N=1,904




REASONS FOR APPLYING BY INDUSTRY 2                                 (% of applicants)



65%
         63%
                 61%
                         57% 56%

                                                                     49%
                                         46%                                                 45% 45%
                                                             42%             41% 41%

                                                                                                                                                                32%
                                                                                                                                                       30%
                                                                                                                                               28%
                                                                                                                           24%         25%
                                                                                                                                 20%




    Expand business/new opportunity                                    Operating expenses                                               Refinance

     N
      on-manufacturing goods production and                            B
                                                                         usiness support and consumer                       H
                                                                                                                              ealthcare and education (N=294)
     associated services (N=837)                                        services (N=434)
                                                                                                                             R
                                                                                                                              etail (N=309)
     P
      rofessional services and real estate (N=711)                     L eisure and hospitality
                                                                        (N=250)




1   Approximately the second half of 2016 through the second half of 2017.
2   Respondents could select multiple options. Response option ‘other’ not shown in chart. See Appendix for more detail.

2017 SMALL BUSINESS CREDIT SURVEY | REPORT ON EMPLOYER FIRMS                                    Source: Small Business Credit Survey, Federal Reserve Banks           27
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