Fed Sees Jump In SMB Capital Demand

The Federal Reserve has released new data on small businesses’ appetite for capital, and it appears that financing demand is on the rise.

Reports in ABA Banking Journal this week said the Small Business Credit Survey, released as a collaborative effort between the 12 Federal Reserve banks, revealed the majority of small businesses surveyed reported being profitable last year, and had experienced an increase in revenues throughout 2018. More than 70 percent said they expect their revenues to continue climbing this year, and 44 percent plan to add to their current head counts.

Compared to 2017 figures, small businesses have increased their demand for capital. Forty-three percent of companies surveyed said they had applied for financing in the last 12 months, and of those, nearly half (47 percent) received the full value of what they sought. Nearly one-third sought financing online in 2018, an increase from 24 percent in 2017. Applicants with higher-risk profiles were just as likely to seek financing from online lenders as with large, traditional banks.

Additionally, it was found that more than one-third have added employees in the last 12 months, with the largest gains seen at startups, companies with more than $1 million in revenue, companies with more than five employees and firms whose decision-makers are under 45 years old, the report noted.

But analysts also found that when it comes to hiring plans, fewer businesses expect employment growth in 2019 than last year. Further, only about half of the businesses that did not apply for financing said they had sufficient financing. The largest financing gaps were felt among businesses with “weak credit profiles,” unprofitable businesses, younger businesses and businesses in urban markets.

“The report findings provide an in-depth look at small business performance, debt holdings and credit experiences, complementing national data on lending volumes and lender perceptions,” the Fed wrote in its report.