The Federal Reserve Bank of New York’s Office of Regional and Community
Outreach polled small businesses about their business performance, financing
choices, and borrowing experiences. The poll was conducted online and distributed
through a network of local government and nonprofit partners.
More than three years into the economic recovery, the number of small business loans stands at three-quarters of its 2008 peak. National data show that the number of small business loans—defined as $1 million or less—declined by 4.7 percent in 2011.
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A closer look reveals that most of the recent decline was due to a drop in the number of microloans—those less than $100,000. While lenders report easing credit standards for large and medium-size firms, loan standards for small businesses have not changed in the last four consecutive Federal Reserve Senior Loan Officer Opinion Surveys.
As part of its regional and community outreach, the New York Fed monitors credit conditions by asking small business owners about their credit needs and experiences. In April/May 2012, we heard from 544 small businesses. Evidence from small business owners suggests that the recent drop in lending may be due in part to weaker firms self-selecting out of the credit market. Fifty-nine percent of firms did not seek any financing during the last year. Half of the non-applicants said they did not apply because they did not think they would be approved. However, the poll also suggests that the drop in microloans is not wholly due to lack of demand. In fact, applicants expressed strong demand for microloans—but firms also reported higher denial rates for these loans than for larger amounts.
Here are the key findings:
Self-selection out of the credit market
59% of firms did not apply for credit between May 2011 and May 2012.
Half of non-applicants said that they did not apply because they did not think they would be approved. These firms were younger, smaller, had weaker sales, and less frequently identified a bank as a primary financing source.
Applicants sought small dollar loans but encountered limited supply
58% of applicants sought a microloan ($100,000 or less), most often for short-term working capital.
However, denial rates were higher for firms seeking microloans than those seeking larger amounts. The credit profile of unsuccessful applicants included young age (5 years or less in business), weaker sales performance, and infrequency of strong bank relationships.
Partial credit was a common outcome
63% of applicants were able to get at least some of the credit they sought. However, only 13% percent of applicants indicated obtained the full amount of credit sought.
Two-thirds of credit applications were denied, and the most sought-after product, lines of credit, had the highest denial rate: 87%.
Loan demand for Q3 and Q4 2012 is anticipated from re-applicants and previously discouraged firms
Overall, 43% of respondents plan to apply for some form of credit in Q3 and Q4 2012.
Of these, half are re-applicants who received only partial credit in 2011-12 but who resemble successful applicants in 2011-12.
The other half of firms that intend to apply did not apply between May 2011 and May 2012. Their credit profile is more similar to that of recently unsuccessful applicants.
Restoring health to the small business sector, and the credit necessary
to support its recovery, are continuing concerns. While recent surveys
indicate an easing of underwriting criteria, data also show a 10 percent
decline in small business lending between Q1 2011 and Q1 2012.
The New York Fed visited three different companies and had in depth conversations with their owners. Explore what we learned about their goals, motivations, and challenges by clicking on each picture.
The Small Business Borrowers Poll asks small businesses in New York, New Jersey, and Fairfield County, CT about their business performance and financial and credit experiences. The poll is distributed through a network of civic and nonprofit partners. The poll generally captures the perspectives of smaller firms (typically fewer than 10 employees and under $5 million in annual revenues) who respond to the questionnaire.
In total, there were 544 poll respondents to the poll fielded in May 2012; however, it is important to note that the number of respondents to each individual question varied. The graphs featured on this page each identify the number of respondents (n=) for relevant questions. If the analysis required cross-tabulation of multiple questions, only firms which responded to all relevant questions were included.
Note on Poll Methodology: The poll is not a random sample and thus the information should not be interpreted as a statistical representation of small businesses in the Second District or the nation. Rather, the results should be viewed as suggestive and analyzed with awareness of potential methodological biases.
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small business finances
Company Name:
Gogo's Garlic Dip
Who:
Yiorgos Samios and Jennifer Samios
Year Founded:
2010
What:
Garlic dip
Where:
Entrepreneur Space, Long Island City, Queens, NY
Our basic challenge is we need money to support our love, our product.
Why did you decide to start Gogo's at this time?
I don't think either one of us sat around and said, well, maybe we should wait for this downturn to turn back up.
listen:
If your next question is if you got money, what would you do with it, it would be to pay someone to do some marketing.
listen:
Part of the reason I would love more people to do the marketing is so
that we can spend a little more time adjusting the recipes and coming up
with new flavors.
What's your advice to firms that are trying to sell their products through wholesalers?
Make it a partnership, and focus as much as you can on working with the
businesses that see you as a partner, that are interested
in what you have to offer.
listen:
I'd love to have an office that's not a corner of our kitchen.
listen:
click on thumbnail to view more
Company Name:
Bundle
Who:
Allison O'Neill
Year Founded:
2008
What:
Infant and Toddler Clothing & Accessories
Where:
Soho, New York, NY
One of the things I found was that, of all of retail, children is kind
of the most recession proof.
listen:
I had great credit. I had basically four times the amount of a loan I was looking for, in my brokerage account, and they didn't care. They were just like, we're not taking any risks on start ups.
listen:
Whatever you think cash flow wise you will need for your worst, worst scenerio, like the one you think is never going to happen, double it.
listen:
Everyone who works here wears many hats...everyone who's here is a Sales Associate, and a Social Media Manager, and a Marketing Manager, and an Inventory Specialist.
listen:
Luckily, I'm not looking for credit just yet. But, a year from now I likely
will be. And, I hope conditions gets a little bit better, because I think
it's still really hard for young businesses.
listen:
There were landlords who are basically like we're just not interested
in a startup of any type.
listen:
click on thumbnail to view more
Company Name:
The Shannon Group
Who:
Diane Costigan
Year Founded:
1984
What:
Legal Talent Development Firm
Where:
Flatiron District, New York, NY
I think you really have to have a pretty healthy and constructive relationship
with fear to be an entrepreneur or to start a company.
listen:
We have actually seen almost a 300% increase in coaching, which...that's
one of the things we love.
listen:
Just being here, at "In Good Company," there's so many other entrepreneurs
and people who run businesses. And so, I definitely go to the programming
here and that's been really helpful.
listen:
One of our things is really to believe in "Abundance Theory," that it's
not scarcity mentality out there, but there's enough work out there for
everyone.
listen:
I'm the daughter of an accountant, and so I tend to have a more conservative financial outlook.
listen:
Because of what we do, we're a little bit recession-proof, and we're pretty grateful for that.
listen:
Our goal for this year is to make the same money we made last year, and
normalize, stablize and organize.
DISCLAIMER: The views expressed by the small business owners in the interactive slides are their own and do not necessarily reflect the views of the Federal Reserve Bank of New York or the Federal Reserve System.
More than three years into the economic recovery, the number of small business loans stands at three-quarters of its 2008 peak. National data show that the number of small business loans—defined as $1 million or less—declined by 4.7 percent in 2011.
A closer look reveals that most of the recent decline was due to a drop in the number of microloans—those less than $100,000. While lenders report easing credit standards for large and medium-size firms, loan standards for small businesses have not changed in the last four consecutive Federal Reserve Senior Loan Officer Opinion Surveys.
As part of its regional and community outreach, the New York Fed monitors credit conditions by asking small business owners about their credit needs and experiences. In April/May 2012, we heard from 544 small businesses. Evidence from small business owners suggests that the recent drop in lending may be due in part to weaker firms self-selecting out of the credit market. Fifty-nine percent of firms did not seek any financing during the last year. Half of the non-applicants said they did not apply because they did not think they would be approved. However, the poll also suggests that the drop in microloans is not wholly due to lack of demand. In fact, applicants expressed strong demand for microloans—but firms also reported higher denial rates for these loans than for larger amounts.
Here are the key findings:
Self-selection out of the credit market
59% of firms did not apply for credit between May 2011 and May 2012.
Half of non-applicants said that they did not apply because they did not think they would be approved. These firms were younger, smaller, had weaker sales, and less frequently identified a bank as a primary financing source.
Applicants sought small dollar loans but encountered limited supply
58% of applicants sought a microloan ($100,000 or less), most often for short-term working capital.
However, denial rates were higher for firms seeking microloans than those seeking larger amounts. The credit profile of unsuccessful applicants included young age (5 years or less in business), weaker sales performance, and infrequency of strong bank relationships.
Partial credit was a common outcome
63% of applicants were able to get at least some of the credit they sought. However, only 13% percent of applicants indicated obtained the full amount of credit sought.
Two-thirds of credit applications were denied, and the most sought-after product, lines of credit, had the highest denial rate: 87%.
Loan demand for Q3 and Q4 2012 is anticipated from re-applicants and previously discouraged firms
Overall, 43% of respondents plan to apply for some form of credit in Q3 and Q4 2012.
Of these, half are re-applicants who received only partial credit in 2011-12 but who resemble successful applicants in 2011-12.
The other half of firms that intend to apply did not apply between May 2011 and May 2012. Their credit profile is more similar to that of recently unsuccessful applicants.