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Credit Demand Holds Steady as Small Businesses Remain Optimistic

Member banks of the Federal Reserve recently released the Small Business Credit Survey, and of the 6,614 respondents, 57% reported that their firms generated revenue growth with more than a third adding employees. In forecasting through 2019, 72% of the firms are optimistic of more revenue growth with 44% expecting to add jobs to their payroll. Other notable results of the survey include:

  • 43% of the respondents applied for new capital with 47% receiving 100% of the funding sought. Shortfalls for the remaining 53% include weak credit profiles, unprofitable or younger firms, and firms located in urban environments.

  • Of those in the survey that did not apply for funding, 48% indicated that their financing needs are met with the remaining 52% indicating they applied but did not qualify, did not apply because of high debt/low credit score, or were discouraged from applying.

  • 73% reported that their operating expenses have increased with more than half raising prices to offset the increases.

  • 77% of the firms have revenue below $10MM.

  • 86% of the firms have less than 20 employees.

  • 53% of the firms are ten years old or less.

  • 52% of the firms are professional services and real estate, non-manufacturing production and services, and business support and consumer services; 4% are manufacturing firms.

In spite of the gloomy narrative of an impending downturn, as the Fed lowers interest rates to help drive growth, small businesses with loans tied to variable interest rates are benefiting from the improvement to cash flow. So long as consumers continue to spend, the small business economy will likely remain steady.  

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