Federal Reserve Banks, Small Business Credit Survey: 2020 Report on Employer Firms (2020)
Summary
Small Business Credit Survey 2020 Report on Employer Firms from the twelve Federal Reserve Banks, covering performance, financial challenges, financing applications, lender approvals and owner demographics for small employer firms. The executive summary notes that firms with 1–499 employees account for 47.5% of the private-sector workforce and that the report appears as small businesses grapple with the COVID-19 pandemic. Among the survey findings, the most common action, cited by 47% of firms, would be to use the owner's personal funds, and another 17% of firms would have to close. NORC at the University of Chicago helped weight the data to represent the national small business population. Claire Kramer Mills of the Federal Reserve Bank of New York signed the acknowledgments.
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“Federal Reserve Banks, Small Business Credit Survey: 2020 Report on Employer Firms (2020).”
Original at web.archive.org. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/federal-reserve-banks-small-business-credit-survey-2020-report-on-empl-0bc88c21be/
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2020 REPORT ON EMPLOYER FIRMS
SMALL BUSINESS
CREDIT SURVEY
F E DE R A L R E SE RV E BA 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 14 APPLICATIONS
ii EXECUTIVE SUMMARY 15 LOAN/LINE OF CREDIT SOURCES
17 LOAN/LINE OF CREDIT APPROVALS
1 PERFORMANCE
19 LENDER CHALLENGES
3 GROWTH EXPECTATIONS 20 APPLICANT SATISFACTION
4 GROWTH AMBITIONS
21 NONAPPLICANTS
5 FINANCIAL CHALLENGES
22 FINANCIAL CHALLENGES:
6 FUNDING BUSINESS OPERATIONS NONAPPLICANTS AND APPLICANTS
8 RELIANCE ON PERSONAL FINANCES 23 NONAPPLICANT USE OF
9 LENDING RELATIONSHIPS FINANCING AND CREDIT
24 NONAPPLICANT LOAN/LINE
10 DEMAND FOR FINANCING OF CREDIT SOURCES
11 FINANCING NEEDS AND OUTCOMES
25 U.S. SMALL EMPLOYER FIRM
12 FINANCING RECEIVED DEMOGRAPHICS
13 FINANCING RECEIVED AND
SHORTFALLS 29 FACILITIES
31 METHODOLOGY
ACKNOWLEDGMENTS
The Small Business Credit Survey is made possible through collaboration with business and civic 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 Officers,3 and representatives from the
U.S. Small Business Administration, America’s SBDCs, U.S. Department of the Treasury, Consumer Financial Protection Bureau, Opportunity
Finance Network, Accion, and The Aspen Institute for their support for this project.
This report is the result of the collaborative effort, input, and analysis of the following teams:
REPORT AND SURVEY TEAM Peter Dolkart, Federal Reserve Bank of Richmond
Jessica Battisto, Federal Reserve Bank of New York Emily Engel, Federal Reserve Bank of Chicago
Mels de Zeeuw, Federal Reserve Bank of Atlanta Ian Galloway, Federal Reserve Bank of San Francisco
Claire Kramer Mills, Federal Reserve Bank of New York Dell Gines, Federal Reserve Bank of Kansas City
Scott Lieberman, Federal Reserve Bank of New York Desiree Hatcher, Federal Reserve Bank of Chicago
Ann Marie Wiersch, Federal Reserve Bank of Cleveland Melody Head, Federal Reserve Bank of San Francisco
Mary Hirt, Federal Reserve Bank of Atlanta
PARTNER COMMUNICATIONS LEAD Treye Johnson, Federal Reserve Bank of Cleveland
Mary Hirt, Federal Reserve Bank of Atlanta Jason Keller, Federal Reserve Bank of Chicago
Garvester Kelley, Federal Reserve Bank of Chicago
PARTNER OUTREACH LEAD
Steven Kuehl, Federal Reserve Bank of Chicago
Brian Clarke, Federal Reserve Bank of Boston
Michou Kokodoko, Federal Reserve Bank of Minneapolis
OUTREACH TEAM Lisa Locke, Federal Reserve Bank of St. Louis
Leilani Barnett, Federal Reserve Bank of San Francisco Craig Nolte, Federal Reserve Bank of San Francisco
Laura Choi, Federal Reserve Bank of San Francisco Drew Pack, Federal Reserve Bank of Cleveland
Brian Clarke, Federal Reserve Bank of Boston Emily Ryder Perlmeter, Federal Reserve Bank of Dallas
Joselyn Cousins, Federal Reserve Bank of San Francisco Alvaro Sanchez, Federal Reserve Bank of Philadelphia
Naomi Cytron, Federal Reserve Bank of San Francisco Javier Silva, Federal Reserve Bank of New York
Marva Williams, Federal Reserve Bank of Chicago
We thank all of the above for their contributions.
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.
1 For a full list of community partners, please visit www.fedsmallbusiness.org.
2 For complete information about the survey methodology, please see Methodology.
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;
Jackson Winsett, Federal Reserve Bank of Kansas City; Alene Tchourumoff, Federal Reserve Bank of Minneapolis; Tony Davis, Federal Reserve Bank of New York;
Theresa Singleton, Federal Reserve Bank of Philadelphia; Christy Cleare, Federal Reserve Bank of Richmond; Daniel Davis, Federal Reserve Bank of St. Louis; and
Adrian Rodriguez, Federal Reserve Bank of San Francisco.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS i
EXECUTIVE SUMMARY
The publication of this report comes at a SURVEY FINDINGS àà The most common action (47% of
particularly challenging time for our nation’s firms) would be to use the owner’s
The importance of small businesses to our
small business sector. Small businesses personal funds.
nation’s economy cannot be overstated.
across the country are grappling with the
Small employer firms, those with 1–499 àà Another 17% of firms would have
profound impact of the COVID-19 pandemic
employees, account for 47.5% of the to close.
on their operations and on their owners’ and
private-sector workforce1 and are vital to àà Among firms that applied for financing
employees’ livelihoods. As policymakers and
the fabric of local communities. The SBCS in the prior 12 months, 46% would plan
service providers begin to enact programs to
delivers timely information on small business to take out additional debt.
help firms weather the economic challenges,
financing needs, decisions, and outcomes to
insights about the financial position of small Owners’ personal finances remain deeply
policymakers, lenders, and service providers.
businesses can provide a useful perspective intertwined with the finances of their
The 2019 survey yielded 5,514 responses
on how best to target funds and services. businesses, with 88% of firms relying on
from small employer firms with 1–499 full-
The Federal Reserve Banks’ Small Business an owner’s personal credit score to secure
or part-time employees (hereafter “firms”), in
Credit Survey (SBCS), fielded in Q3 and Q4 financing. Additionally, 56% have used
the 50 states and the District of Columbia.2
of 2019, offers baseline data on the financ- funds from their personal savings, friends,
ing and credit positions of small firms before Overall, the survey finds or family within the last five years to
the onset of the crisis. The survey findings support their business.
provide insights into firms’ preparedness Firm performance was relatively strong
to withstand the shock, their existing debt prior to the pandemic. Debt holdings are common and typically
levels, and the actions they may take in small dollar, and nearly half of recent credit
Small business respondents reported
response to an unexpected loss of revenues. applicants have experienced funding gaps.
a strong end to 2019. A majority of small
businesses (56%) reported that their firms Forty percent of firms hold outstanding
Understanding that the potential effects of
had experienced revenue growth, and debt in amounts up to $100,000. A majority
COVID-19 are substantial and will vary by
more than one-third added employees of firms used personal guarantees as
type of business, accompanying this report
to their payrolls. collateral to secure this debt.
is a separate analysis that explores small
business resiliency. This supplemental brief, The shares of firms reporting revenue Demand for new financing has been
Can Small Firms Weather the Economic growth, profitability, and employment steady, with 43% of firms applying for new
Effects of COVID-19?, is published concur- growth were all virtually unchanged credit in 2019, in line with the 43% that
rently with this report. A subsequent report from 2018. applied in 2018, and 40% in 2017.
will provide results from nonemployer firms. Large and small banks remain small
Profit margins were tightening for many.
firms’ top choices when applying for
The results of the survey raise several Input costs increased for 76% of firms credit, followed closely by online lenders;
important considerations in the current over the prior year. Profit margins fell for having a relationship with a lender drives
environment: most firms are ill prepared for 40% of firms. Of firms that reported higher many firms to apply to banks, but the
a sustained period of revenue loss; firms’ input costs, 61% raised the prices that chances of being funded and speed of
reliance on personal funds could mean they charge. credit decisions are top reasons firms
severe repercussions for those individuals
apply to an online lender.
and households in the event of failure; and Firms have common cash flow challenges,
many small businesses do not rely on and many rely on personal funds. Fifty-one percent of applicants received
traditional banks for credit, and, therefore, the full amount of financing sought.
In the prior 12 months, 66% of employer
any program designed to support them Of the firms that did not receive the full
firms faced financial challenges; the
should take that into consideration. amount, 20% indicated that the firm chose
most common challenge was paying
to decline some or all of the approved
operating expenses (43%).
financing—most often because the
If faced with a two-month revenue interest rate was too high.
loss, 86% of firms would need to take
some action to supplement funding
or cut expenses.
1 U.S. Small Business Administration, “2018 Small Business Profile,” https://www.sba.gov/sites/default/files/advocacy/2018-Small-Business-Profiles-US.pdf.
2 The Small Business Credit Survey collects information from both employer and nonemployer firms. The 2019 survey yielded 4,020 responses from nonemployers.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS ii
EXECUTIVE SUMMARY (CONTINUED)
Though banks are the most broad-reaching ABOUT THE SURVEY
lending channel, many small businesses
The SBCS is an annual survey of firms with
do not use bank funding.
fewer than 500 employees. These types of
Less than half (44%) of small firms have firms represent 99.8% of all employer estab-
obtained funds from a bank in the last lishments3 in the United States. Respondents
five years. The most common source are asked to report information about their
of funding for firms overall was personal business performance, financing needs
savings or funds from friends or family. and choices, and borrowing experiences.
Among firms that have obtained external Responses to the SBCS provide insights
financing—outside of family or friend on the dynamics behind lending trends and
networks—banks were the most common shed light on noteworthy segments of the
channel (44% of firms), followed by online small business population. The SBCS is not
lenders (22% of firms) and credit unions a random sample; results should be analyzed
(6% of firms). with awareness of potential biases that are
associated with convenience samples. For
The use of bank financing varies signifi- detailed information about the survey design
cantly by race and ethnicity of owner, firm and weighting methodology, please consult
revenue size, and credit risk, with highest the Methodology section.
reported bank funding found among firms
with >$1M in annual revenues (57%), firms Given the breadth of the 2019 survey data,
with low credit risk (55%), and firms with the SBCS can shed light on various segments
non-Hispanic white ownership (46%). of the small business population, including
By contrast, firms with Non-Hispanic startups and growing firms, microbusiness-
black ownership are half as likely to es, minority-owned firms, women-owned
have obtained bank funds (23%), and firms, firms located in low- and moderate-
rates are similarly low among microbusi- income communities, and self-employed
nesses (that is, $100,000 or less individuals (nonemployer firms).
in revenues)—24%—and those with
Latino ownership (34%).
3 U.S. Census Bureau, County Business Patterns, 2017.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS iii
PERFORMANCE
The shares of firms reporting revenue and employment growth in 2019
were nearly unchanged from 2018, and the net share of firms operating
at a profit remained flat.
EMPLOYER FIRM PERFORMANCE, 2019 Survey (% of employer firms)
PROFITABILITY,1 REVENUE CHANGE,1 EMPLOYMENT CHANGE,
End of 2018 Prior 12 Months2 Prior 12 Months2
N=4,942 N=4,983 N=4,810
At a profit 57% Increased 56% Increased 36%
Break even 18% No change 21% No change 49%
At a loss 24% Decreased 22% Decreased 15%
EMPLOYER FIRM PERFORMANCE INDEX,3 Prior 12 Months2 (% of employer firms)
35% Profitability
34% Revenue growth
33%
Employment growth
33% 33%
29%
28%
23%
22%
21%
19%
17%
2016 Survey 2017 Survey 2018 Survey 2019 Survey
N4=9,633–9,758 N4=7,684–7,983 N4=6,176–6,438 N4=4,810–4,983
1 Percentages may not sum to 100 due to rounding.
2 Approximately the second half of the prior year through the second half of the surveyed year.
3 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.
4 Questions were asked separately, thus the number of observations may differ slightly between questions.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 1
PERFORMANCE (CONTINUED)
76% of small firms saw their input costs increase over the prior year.
40% reported falling profit margins.
CHANGES IN COSTS, PRICES, AND PROFITABILITY,1 Prior 12 Months2
(% of employer firms)
Large increase3
14% 10% Small increase3
26% 27% No change
20% Small decrease3
Large decrease3
40%
43% 29%
49%
41% 26%
29% 19%
1% 14%
1% 3% 2% 4% 2%
Change in cost Change in Change in prices Change in
of labor/wages input costs the business profit margins
N=5,009 N=4,989 charges N=4,971 N=4,962
Of firms that saw higher input costs, 61% raised the prices that they charge.
CHANGE IN PRICES CHARGED BY FIRMS WITH INCREASED INPUT COSTS N=3,813
(% of employer firms with increased input costs)
61% 39%
Raised prices Did not raise prices
1 Percentages may not sum to 100 due to rounding.
2 Approximately the second half of 2018 through the second half of 2019.
3 “Large” refers to a change of 4% or greater. “Small” refers to a nonzero change that is less than 4%.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 2
GROWTH EXPECTATIONS
The 2019 survey revealed that a majority of firms were anticipating revenue
growth in the coming year, though the net share of firms expecting revenue
growth declined relative to the 2018 survey.
EMPLOYER FIRM EXPECTATIONS, Next 12 Months1 (% of employer firms)
EXPECTED REVENUE CHANGE N=4,967 EXPECTED EMPLOYMENT CHANGE N=5,024
Will increase 69% Will increase 44%
Will not change 20% Will not change 50%
Will decrease 11% Will decrease 6%
EMPLOYER FIRM EXPECTATIONS INDICES,2 Next 12 Months1 (% of employer firms)
64% Revenue growth
63%
expectations
Employment growth
58% 58% expectations
43%
38% 38%
37%
2016 Survey 2017 Survey 2018 Survey 2019 Survey
N3=9,765–9,795 N3=7,736–8,073 N3=6,450–6,480 N3=4,967–5,024
1 Expected change in approximately the second half of the surveyed year through the second half of the following year.
2 The index is the share reporting expected growth minus the share reporting a reduction.
3 Questions were asked separately, thus the number of observations may differ slightly between questions.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 3
GROWTH AMBITIONS
30% of employer Growing firms are defined as those that
Increased revenues1
firms were growing Increased number of employees1
as of the end of 2019. Plan to increase or maintain number of employees2
N=4,598
A majority of firms, 77%, prefer for their business to be larger than
its current size.
PREFERENCE FOR FUTURE SIZE OF FIRM (% of employer firms) N=4,677
Much larger 26%
Somewhat larger 51%
Same size 16%
Smaller 2%
Plan to sell/close 5%
1 Prior 12 months. Approximately the second half of 2018 through the second half of 2019.
2 Expected change in approximately the second half of the surveyed year through the second half of the following year.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 4
FINANCIAL CHALLENGES
66% of employer firms faced financial challenges in the prior 12 months.1
FINANCIAL CHALLENGES,2 Prior 12 Months1 N=6,490
(% of employer firms)
43% 33% 30% 19% 8% 34%
Paying operating expenses Securing Making payments Purchasing No financial
(including wages) credit on debt inventory challenges
or supplies
to fulfill
contracts
Other financial challenge
17% of firms would have to close if they experienced a two-month
revenue loss.
ACTIONS BUSINESS WOULD TAKE IN RESPONSE TO A 2-MONTH REVENUE LOSS2 N=5,139
(% of employer firms)
Use owner's personal funds 47%
Reduce salaries of owner
37%
or employees
Take out debt 34%
Lay off employees 33%
Downsize operations (reduce
30%
hours, services, or production)
Defer expenses/payments 29%
Close or sell the business 17%
No action; use cash reserves
14%
to continue normal operations
1 Approximately the second half of 2018 through the second half of 2019.
2 Respondents could select multiple options.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 5
FUNDING BUSINESS OPERATIONS
For 77% of firms, retained business earnings are the primary source
of funding.
PRIMARY FUNDING SOURCE1 (% of employer firms)
15% 11% 13% 9% External financing
14% Personal funds
18% 18%
21% Retained business
77% earning
70% 69%
64%
2016 Survey 2017 Survey 2018 Survey 2019 Survey
N=9,745 N=8,081 N=6,543 N=5,090
Loans, lines of credit, and credit cards are the most common types of
external financing used by employer firms.
USE OF FINANCING AND CREDIT,2 Products used on a regular basis (% of employer firms) N=5,100
Loan or line of credit 54%
Credit card 53%
Trade credit 12%
Leasing 11%
Equity investment 6%
Merchant cash advance 5%
Factoring 3%
Other 2%
Business does not use
20%
external financing
1 Percentages may not sum to 100 due to rounding.
2 Respondents could select multiple options.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 6
FUNDING BUSINESS OPERATIONS
(CONTINUED)
AMOUNT OF DEBT,1,2,3 At Time of Survey (% of employer firms) N=5,063
68% hold $100K or less
29%
16%
13% 13%
11% 12%
5%
No outstanding ≤$25K $25K–$50K $50K–$100K $100K–$250K $250K–$1M >$1M
debt
A majority of firms with debt used a personal guarantee to secure their debt.
COLLATERAL USED TO SECURE DEBT4 (% of employer firms with debt) N=3,636
Personal guarantee 59%
Business assets 49%
Personal assets 31%
Portions of future sales 8%
None 17%
1 This chart is not comparable to the “Amount of Debt” chart shown in the 2018 Report on Employer Firms because the amount of debt was only shown for employer
firms with debt. This chart includes an option for “no outstanding debt” in order to show the amount of debt for all employer firms.
2 Categories have been simplified for readability. Actual categories are: ≤$25K, $25,001–$50K, $50,001–$100K, $100,001–$250K, $250,001–$1M, >$1M.
3 Percentages may not sum to 100 due to rounding.
4 Respondents could select multiple options. Response option “other” not shown in chart. See Appendix for more detail.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 7
RELIANCE ON PERSONAL FINANCES
88% of employer firms rely on an owner’s personal credit score to obtain
financing, similar to 2018.
USE OF PERSONAL AND BUSINESS CREDIT SCORES1 (% of employer firms) N=3,696
12% 40% 48%
Business score only Owner’s personal score only Both business and personal scores
56% of firms have relied on personal savings, friends, or family to fund their
business in the last five years.
FUNDING SOURCES USED IN THE LAST FIVE YEARS2,3 (% of employer firms) N=5,148
Personal savings,
56%
friends, or family
Bank 44%
Online lender4 20%
Finance company5 9%
Credit union 6%
Nonprofit/community-
5%
based funding source
Alternative financial
3%
source6
CDFI7 1%
None 15%
1 Percentages may not sum to 100 due to rounding.
2 Respondents could select multiple options.
3 Response option “other” not shown. See Appendix for details.
4 “Online lenders” are defined as nonbank alternative and marketplace lenders, including Lending Club, OnDeck, CAN Capital, Kabbage, and PayPal Working Capital.
5 “Finance company” includes nonbank lenders such as mortgage companies, equipment dealers, insurance companies, auto finance companies, etc.
6 Examples include payday lender, check cashing, pawn shop, money order/transmission service, etc.
7 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.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 8
LENDING RELATIONSHIPS
44% of firms have used a bank for funding in the last five years, indicating
a prior lending relationship. Banking relationships are more common among
larger firms, firms with better credit scores, and firms with white ownership.
FUNDING SOURCES USED IN THE LAST FIVE YEARS, Select Sources (% of employer firms) N=5,148
Bank 44%
Online
20%
lender
Credit
6%
union
FUNDING SOURCES USED IN THE LAST FIVE YEARS BY DEMOGRAPHIC CHARACTERISTICS,
Select Sources (% of employer firms)
Bank Online lender Credit union
Annual revenue of >$1M N=2,499 57% 41% 8%
Low credit risk N=2,198 55% 27% 8%
Non-Hispanic white ownership N=3,993 46% 24% 7%
Medium/high credit risk N=1,213 36% 22% 7%
Annual revenue of $100K–$1M N=1,758 35% 22% 7%
Hispanic ownership N=422 32% 19% 6%
Annual revenue of $100K or less N=466 24% 13% 5%
Non-Hispanic Black ownership N=468 23% 8% 4%
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 9
DEMAND FOR FINANCING
The share of firms that applied for financing has remained flat since 2018.
SHARE THAT APPLIED FOR FINANCING, REASONS FOR APPLYING2,3 N=2,384
Prior 12 Months1 (% of employer firms) (% of applicants)
Expand business, pursue
45% new opportunity, or acquire 56%
43% 43% business assets
Meet operating expenses 43%
40% Refinance or pay
30%
down debt
2016 2017 2018 2019
Survey Survey Survey Survey Replace capital assets
18%
N=9,868 N=8,169 N=6,614 N=5,154 or make repairs
TOTAL AMOUNT OF FINANCING SOUGHT,4 Prior 12 Months1 (% of applicants) N=2,374
21%
19% 19% 19%
15%
7%
≤$25K $25K–$50K $50K–$100K $100K–$250K $250K–$1M >$1M
1 Approximately the second half of the prior year through the second half of the surveyed year.
2 Respondents could select multiple options.
3 Response option “other” not shown. See Appendix for details.
4 Categories have been simplified for readability. Actual categories are: ≤$25K, $25,001–$50K, $50,001–$100K, $100,001–$250K, $250,001–$1M, >$1M.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 10
FINANCING NEEDS AND OUTCOMES
FUNDING NEEDS AND OUTCOMES1 (% of employer firms) N=5,023
To gauge funding success and shortfalls, we combine applicants’ financing outcomes and nonapplicants’ reasons for not
applying. Firms that had their funding needs met emerge in two forms:
1) Applicant firms that received the full amount of financing sought; or
2) Nonapplicant firms that did not apply for financing because they already had sufficient financing.
The remaining firms may or may not have unmet funding needs. When applicant firms did not obtain the full amount of financing
sought, we consider them to have a funding shortfall. When nonapplicant firms did not report they had sufficient financings,
we consider them to have potentially unmet funding needs.
43% 57%
Applied for financing Did not apply for financing
9% 12% 22% 27% 14% 9% 7%
Received Received Received Sufficient Debt averse Discouraged2 Other
none some all financing
30%
21% 49% May have
Financing Financing unmet
shortfall needs met financing
needs
1 Based on the prior 12 months, which is approximately the second half of 2018 through the second half of 2019.
2 Discouraged firms are those that did not apply for financing because they believed they would be turned down.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 11
FINANCING RECEIVED
51% of employer firms that applied for credit received all the financing
they sought.
TOTAL FINANCING RECEIVED1 (% of applicants)
44% 47% 47% 51% All (100%)
Most (51%–99%)
Some (1%–50%)
None (0%)
15%
13% 13%
13%
20% 20% 19%
15%
22% 20% 22% 21%
2016 Survey 2017 Survey 2018 Survey 2019 Survey
N=4,572 N=3,447 N=2,892 N=2,339
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 FIRM2 (% of applicants)
All (100%)
23% Most (51%–99%)
39% Some (1%–50%)
62% 10%
None (0%)
15% 25%
13% 22%
11% 42%
24%
15%
Low credit risk Medium credit risk High credit risk
N=982 N=568 N=175
1 Respondents could select multiple options.
2 Credit risk is determined by the 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 <620 personal credit score.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 12
FINANCING RECEIVED AND SHORTFALLS
Of the firms that did not receive the full amount of financing sought,
20% indicated that the firm chose to decline some or all of the approved
financing—most often because the interest rate was too high.
REASONS FOR OBTAINING LESS THAN THE FULL AMOUNT OF FINANCING SOUGHT1 N=1,132
(% of applicants with financing shortfall)
77%
20%
4%
10%
At least some of the Declined some or all of Application(s) pending Other reason
financing was not the approved financing
approved
REASONS FOR CREDIT DENIAL1 N=635 REASONS FIRM DECLINED N=214
(% of applicants that were not approved for at least APPROVED FUNDING1
some financing) (% of applicants that declined approved financing)
Too much debt Cost/interest rate
44% 73%
already too high
Unfavorable
Low credit score 36% 63%
repayment terms
Amount offered
Insufficient collateral 33% 32%
was too small
Too new/insufficient Collateral
30% 19%
credit history requirements
Weak business Funding needs
18% 8%
performance changed
Funding took too
Other reason 9% 7%
long to be approved
Other reason 4%
1 Respondents could select multiple options.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 13
APPLICATIONS
Applicants were most often seeking loans or lines of credit.
FINANCING AND CREDIT PRODUCTS SOUGHT1 (% of applicants) N=2,347
Loan or line of credit 88%
Credit card 29%
Trade credit 10%
Merchant cash advance 9%
Leasing 9%
Equity investment 5%
Factoring 4%
Other 1%
APPLICATION RATE FOR LOANS/LINES OF CREDIT1 (% of loan/line of credit applicants) N=1,874
Business loan 49%
Business line of credit 40%
SBA loan 20%
Auto/equipment loan 14%
Personal loan 10%
Home equity line of credit 8%
Mortgage 5%
Other product 10%
1 Respondents could select multiple options.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 14
LOAN/LINE OF CREDIT SOURCES
Large and small banks receive the most credit applications from small
firms. Medium/high-credit-risk applicants, however, were more inclined
to apply to online lenders.
CREDIT SOURCES APPLIED TO1,2,3 (% of loan/line of credit and cash advance applicants) N=1,901
40%
36%
33%
18%
9% 3%
Large bank5 Small bank Online lender6 Finance company7 Credit union CDFI8
CREDIT SOURCES APPLIED TO BY CREDIT RISK OF FIRM1,2,4 (% of loan/line of credit and cash advance applicants)
51%
44%
42%
34%
32%
21%
19%
16%
9% 4%
8% 2%
Large bank5 Small bank Online lender6 Finance company7 Credit union CDFI8
Low credit risk N=861 Medium/high credit risk N=665
1 Respondents could select multiple options.
2 Due to the addition of the “Finance company” option, source application rates are not comparable to those of previous survey years.
3 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.
4 Credit risk is determined by the 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 <620 personal credit score.
5 Respondents were provided a list of large banks (those with at least $10B in total deposits) operating in their state.
6 “Online lenders” are defined as nonbank alternative and marketplace lenders, including Lending Club, OnDeck, CAN Capital, Kabbage, and PayPal Working Capital.
7 “Finance company” includes nonbank lenders such as mortgage companies, equipment dealers, insurance companies, auto finance companies, etc.
8 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.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 15
LOAN/LINE OF CREDIT SOURCES
(CONTINUED)
Online-lender applicants were more than twice as likely as other applicants
to state that denials by other lenders drove their application decisions.
FACTORS INFLUENCING WHERE FIRMS APPLY1 (% of loan/line of credit and cash advance applicants at source)
62%
Existing relationship 60%
with lender 29%
32%
27%
30%
Cost or interest rate
19%
19%
26%
37%
Chance of being funded 46%
39%
23%
Speed of decision 26%
or funding 54%
44%
18%
Recommendation 23%
or referral 10%
19%
15%
19% 32%
Flexibility of product 33% of online lender
24% applicants chose
their lender because
15% they were denied
No collateral was 13%
required 39% by others.
35%
13%
Denied by other 13%
lender(s) 32%
14%
Large bank3 N=708 Small bank N=690 Online lender4 N=500 Finance company5 N=283
1 Respondents could select multiple options.
2 Credit union and CDFI categories not included due to insufficient sample size.
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, Kabbage, and PayPal Working Capital.
5 “Finance company” includes nonbank lenders such as mortgage companies, equipment dealers, insurance companies, auto finance companies, etc.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 16
LOAN/LINE OF CREDIT APPROVALS
Loan/line of credit applicants reported greater success in the 2019 survey
than in previous surveys.
OUTCOMES OF LOAN, LINE OF CREDIT, AND CASH ADVANCE APPLICATIONS
(% of loan/line of credit and cash advance applicants)
56% 59% 59% 64% Fully approved
Partially approved
Denied
23% 19% 22%
19%
21% 22% 19% 17%
2016 Survey 2017 Survey 2018 Survey 2019 Survey
N=3,653 N=2,692 N=2,300 N=1,837
The share of applicants approved for at least some financing is highest
for merchant cash advances and auto/equipment loans.
APPROVAL RATE BY TYPE OF LOAN/LINE OF CREDIT1,2
(% of loan/line of credit and cash advance applicants)
Merchant cash advance N=175 87%
Auto/equipment loan N=281 86%
Mortgage N=93 81%
Business line of credit N=761 79%
Business loan N=851 70%
Home equity line of credit N=60 69%
SBA loan N=343 58%
Personal loan N=154 56%
1 Approval rate is the share approved for at least some credit.
2 Response option “other” not shown in chart. See Appendix for more detail.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 17
LOAN/LINE OF CREDIT APPROVALS
(CONTINUED)
Loan/line of credit and cash advance applicants were most often approved
at finance companies and online lenders.
APPROVAL RATE BY SOURCE OF LOAN/LINE OF CREDIT OR CASH ADVANCE1,2
(% of loan/line of credit and cash advance applicants at source)
85% Large bank3
82% N=755–1,837
Small bank
N=714–1,781
75% 80%
Online lender4
71% N=547–672
70% 74%
68% Finance company5
N=324
69%
62%
59% 58%
56%
2016 Survey 2017 Survey 2018 Survey 2019 Survey
Medium/high-credit-risk applicants had greatest success at finance
companies and online lenders.
APPROVAL RATE BY CREDIT RISK OF FIRM AND SOURCE OF
LOAN/LINE OF CREDIT OR CASH ADVANCE1,2,6
(% of loan/line of credit and cash advance applicants at source)
85% 86% 89%
82%
73% 77%
52%
40%
Large bank3 Small bank Online lender4 Finance company5
Low credit risk N=128–384 Medium/high credit risk N=132–314
1 Credit union and CDFI categories not included due to insufficient sample size.
2 Approval rate is the share approved for at least some credit.
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, Kabbage, and PayPal Working Capital.
5 “Finance company” includes nonbank lenders such as mortgage companies, equipment dealers, insurance companies, auto finance companies, etc.
6 Credit risk is determined by the 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 <620 personal credit score.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 18
LENDER CHALLENGES
Bank applicants were most dissatisfied with wait times for credit decisions.
Online-lender and finance-company applicants were most dissatisfied with
high interest rates.
SHARE OF APPLICANTS WITH CHALLENGES AT SOURCE
(% of loan/line of credit and cash advance applicants at source)
63% 62%
49%
40%
Online lender1 Finance company2 Large bank3 Small bank
N=495 N=278 N=693 N=665
CHALLENGES WITH LENDERS, Select Lenders4
(% of loan/line of credit and cash advance applicants at source)
57%
47%
40%
29%
25%
22%
16% 18% 17% 15%
15% 14% 13%
12% 11% 11%
7% 7% 9% 9%
Long wait for Difficult application High cost or Lack of Unfavorable
decision or financing process interest rate transparency repayment terms
Large bank3 N=693 Small bank N=665 Online lender1 N=495 Finance company2 N=269
1 “Online lenders” are defined as nonbank alternative and marketplace lenders, including Lending Club, OnDeck, CAN Capital, Kabbage, and PayPal Working Capital.
2 “Finance company” includes nonbank lenders such as mortgage companies, equipment dealers, insurance companies, auto finance companies, etc.
3 Respondents were provided a list of large banks (those with at least $10B in total deposits) operating in their state.
4 Respondents could select multiple options.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 19
APPLICANT SATISFACTION
Applicant satisfaction is consistently highest at small banks.
LENDER SATISFACTION1 (% of applicants at least partially approved at source)
Large bank2
N=441 66% 25% 8%
Small bank
N=517 79% 16% 6%
Online lender3
N=397 54% 29% 17%
Finance company4
N=227 63% 25% 12%
Satisfied Neutral Dissatisfied
NET SATISFACTION OVER TIME5 (% of approved loan/line of credit and cash advance applicants at source)
75% 75% Large bank2
73% 73% N=441–1,098
Small bank
N=517–1,251
Online lender3
58% N=309–463
56%
Finance company4
51% 50% N=227
47%
42%
37%
33%
25%
2016 Survey 2017 Survey 2018 Survey 2019 Survey
1 Percentages may not sum to 100 due to rounding.
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, Kabbage, and PayPal Working Capital.
4 “Finance company” includes nonbank lenders such as mortgage companies, equipment dealers, insurance companies, auto finance companies, etc. Data for prior
years are not available because “finance company” was not included as a discrete answer choice.
5 Net satisfaction is the share of firms satisfied minus the share of firms dissatisfied.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 20
NONAPPLICANTS
57% of firms are nonapplicants, meaning they did not apply for financing in
the prior 12 months.1
TOP REASON FOR NOT APPLYING (% of nonapplicants) N=2,684
Other2
12%
Debt averse 25% 48% Sufficient financing
15%
Discouraged3
PERFORMANCE OF NONAPPLICANTS AND APPLICANTS (% of nonapplicants and applicants)
73%
61%
56%
53%
42%
36%
26%
22%
Profitable4 Growing5 Low credit risk6 Did not experience any
financial challenges
Nonapplicants N =1,659–2,709 Applicants N =1,756–2,391
1 Approximately the second half of 2018 through the second half of 2019.
2 Response option “other” includes “credit cost was too high,” “application process was too difficult or confusing,” and “other.” 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 At the end of 2018.
5 Firms that increased revenues and employees in the prior 12 months and that plan to increase or maintain their number of employees.
6 Credit risk is determined by the 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 <620 personal credit score.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 21
FINANCIAL CHALLENGES:
NONAPPLICANTS AND APPLICANTS
59% of nonapplicants experienced financial challenges in the prior 12 months.
TYPES OF FINANCIAL CHALLENGES,1 Prior 12 Months2 (% of nonapplicants and applicants)
50% 49%
37% 39%
21% 23% 24% 7% 8%
15%
Paying operating Credit availability Making payments Purchasing inventory or Other
expenses on debt supplies to fulfill contracts
(including wages)
Nonapplicants N=2,709 Applicants N=2,391
If faced with a hypothetical two-month revenue loss, applicants were
much more likely to say they would take out debt to deal with the loss
compared to nonapplicants.
ACTIONS BUSINESS WOULD TAKE IN RESPONSE TO A 2-MONTH REVENUE LOSS1 (% of nonapplicants and applicants)
46%
Use owner's personal funds
49%
25%
Take out debt
46%
Reduce salaries of owner 37%
or employees 38%
31%
Lay off employees
37%
25%
Defer expenses/payments
35%
Downsize operations (reduce 28%
hours, services, or production) 32%
15%
Close or sell the business
19%
3%
Other
2%
No action; use cash reserves 17%
to continue normal operations 9%
Nonapplicants N=2,746 Applicants N=2,393
1 Respondents could select multiple options.
2 Approximately the second half of 2018 through the second half of 2019.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 22
NONAPPLICANT USE OF
FINANCING AND CREDIT
70% of nonapplicants regularly use external financing. Many regularly use
credit cards or loans/lines of credit.
USE OF FINANCING AND CREDIT,1 Products used on a regular basis (% of nonapplicants and applicants)
Credit card 46%
62%
Loan or line of credit 41%
72%
Trade credit 9%
15%
Lease 8%
15%
Equity investment 5%
7%
Merchant cash advance 2%
9%
Factoring 2%
5%
Other 2%
1%
Business does not use 30%
external financing 7%
Nonapplicants N=2,720 Applicants N=2,380
LOAN/LINE OF CREDIT PRODUCTS HELD BY NONAPPLICANTS1 (% of nonapplicants with loan/line of credit) N=1,116
Business line of credit 42%
Business loan 34%
Home equity line of credit 20%
Auto/equipment loan 18%
SBA loan or line of credit 16%
Personal loan 13%
Mortgage 9%
Other 11%
1 Respondents could select multiple options.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 23
NONAPPLICANT LOAN/LINE
OF CREDIT SOURCES
Banks are the most common source of credit for nonapplicant firms that
regularly use loan/line of credit or cash advance products.
SOURCES OF LOANS, LINES OF CREDIT, AND CASH ADVANCES1,2 N=1,110
(% of nonapplicants that regularly use loan/line of credit or cash advance products from lender)
45%
33%
11% 10% 8% 1%
Large bank3 Small bank Online lender4 Finance company5 Credit union CDFI6
Like recent applicants, nonapplicants with debt were most often satisfied with
their experiences at smaller lenders, including small banks and credit unions.
BORROWER SATISFACTION7 (% of nonapplicants that regularly use loan/line of credit or cash advance products from lender)
85% 78% 67% 66% 49% Satisfied
Neutral
Dissatisfied
36%
30% 27%
18%
13% 15%
2% 5% 2% 7%
Credit union Small bank Finance company5 Large bank3 Online lender4
N=80 N=407 N=109 N=481 N=88
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, Kabbage, and PayPal Working Capital.
5 “Finance company” includes nonbank lenders such as mortgage companies, equipment dealers, insurance companies, auto finance companies, etc.
6 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.
7 Response option “CDFI” not shown due to insufficient sample size. Percentages may not sum to 100 due to rounding.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 24
U.S. SMALL EMPLOYER FIRM
DEMOGRAPHICS
SNAPSHOT VIEW OF U.S. SMALL EMPLOYER FIRMS
CENSUS DIVISION1 FIRM AGE1,2 REVENUE SIZE OF FIRM1
South Atlantic 20% 0–2 years 20% ≤$100K 19%
Pacific 17% 3–5 years 13% $100K–$1M 52%
East North Central 14% 6–10 years 20% $1M–10M 25%
Middle Atlantic 14% 11–15 years 14% >$10M 4%
West South Central 11% 16–20 years 9%
Mountain 8% 21+ years 23%
GENDER1,2
West North Central 7%
Men-owned 65%
New England 5%
NUMBER OF EMPLOYEES 2,5
Women-owned 21%
East South Central 5%
1–4 55% Equally owned 15%
5–9 18%
GEOGRAPHIC LOCATION 2,3
10–19 13%
AGE OF FIRM’S PRIMARY
Urban 84% 20–49 9% DECISION MAKER
Rural 16% 50–499 5% Under 36 7%
Share using contractors 39% 36–45 18%
CREDIT RISK1,4 46–55 29%
Low credit risk 65% RACE/ETHNICITY2 56–65 30%
Medium credit risk 28% Non-minority 82% Over 65 16%
High credit risk 8% Minority 18%
INDUSTRY1,2,6
Professional services and real estate 20%
Non-manufacturing goods production and associated services 18%
Business support and consumer services 15%
Retail 14%
Healthcare and education 13%
Leisure and hospitality 11%
Finance and insurance 6%
Manufacturing 4%
1 Percentages may not sum to 100 due to rounding.
2 SBCS responses throughout the report are weighted using Census data to represent the US small business population on the following dimensions: firm age, size,
industry, geography, race/ethnicity of owner, and gender of owner. For details on weighting, see Methodology.
3 Urban and rural definitions come from Centers for Medicare & Medicaid Services. See Appendix for more detail.
4 Credit risk is determined by the 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 <620 personal credit score.
5 Employer firms are those that reported having at least one full- or part-time employee. Does not include self-employed or firms where the owner is the only employee.
6 Firm industry is classified based on the description of what the business does, as provided by the survey participant. See Appendix for definitions of each industry.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 25
U.S. SMALL EMPLOYER FIRM
DEMOGRAPHICS (CONTINUED)
The following charts provide an overview of the survey respondents.
CENSUS DIVISION1 (% of employer firms) N=5,154
14%
East North
Central
14%
Middle 5%
17% Atlantic New
Pacific 7% England
8% West North
Central
Mountain
20%
South
11% Atlantic
West South
Central
5%
East South
Central
INDUSTRY1,2,3 (% of employer firms) N=5,154
Professional services
20%
and real estate
Non-manufacturing goods
18%
production and associated services
Business support and
15%
consumer services
Retail 14%
Healthcare and education 13%
Leisure and hospitality 11%
Finance and insurance 6%
Manufacturing 4%
1 Percentages may not sum to 100 due to rounding.
2 SBCS responses throughout the report are weighted using Census data to represent the US small business population on the following dimensions: firm age, size,
industry, geography, race/ethnicity of owner, and gender of owner. For details on weighting, see Methodology.
3 Firm industry is classified based on the description of what the business does, as provided by the survey participant. See Appendix for definitions of each industry.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 26
U.S. SMALL EMPLOYER FIRM
DEMOGRAPHICS (CONTINUED)
AGE OF FIRM1,2 N=5,154 GEOGRAPHIC LOCATION1,3 N=5,154
(% of employer firms) (% of employer firms)
23%
20% 20%
14%
13% 84% 16%
9% Urban Rural
0–2 3–5 6–10 11–15 16–20 21+
Years
REVENUE SIZE OF FIRM2 N=5,008 NUMBER OF EMPLOYEES1,4 N=5,154
(% of employer firms) (% of employer firms)
55%
52%
25%
19% 18%
4% 13% 5%
9%
≤$100K $100K–$1M $1M–$10M >$10M 1–4 5–9 10–19 20–49 50–499
Annual revenue Employees
39% of small employer firms use contract workers.
N=5,115
1 SBCS responses throughout the report are weighted using Census data to represent the US small business population on the following dimensions:
firm age, size, industry, geography, race/ethnicity of owner, and gender of owner. For details on weighting, see Methodology.
2 Percentages may not sum to 100 due to rounding.
3 Urban and rural definitions come from Centers for Medicare & Medicaid Services. See Appendix for more detail.
4 Employer firms are those that reported having at least one full- or part-time employee. Does not include self-employed or firms where the owner is the only employee.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 27
U.S. SMALL EMPLOYER FIRM
DEMOGRAPHICS (CONTINUED)
CREDIT RISK OF FIRM1,2 N=3,415 AGE OF PRIMARY DECISION MAKER N=4,675
(% of employer firms) (% of employer firms)
8% Under 36 7%
High credit
risk
36–45 18%
28% 65% 46–55 29%
Low credit
Medium risk
credit 56–65 30%
risk
Over 65 16%
GENDER OF OWNER(S)2,3 N=5,154 RACE/ETHNICITY OF OWNER(S)3 N=5,154
(% of employer firms) (% of employer firms)
2% Non-Hispanic Black
5% or African American
65% 11% Hispanic
Men-owned Non-Hispanic Asian
Non-Hispanic White
21%
Women-owned
82%
15%
Equally owned
1 Credit risk is determined by the 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 <620 personal credit score.
2 Percentages may not sum to 100 due to rounding.
3 SBCS responses throughout the report are weighted using Census data to represent the US small business population on the following dimensions: firm age, size,
industry, geography, race/ethnicity of owner(s), and gender of owner(s). For details on weighting, see Methodology.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 28
FACILITIES
A majority of small firms rent the facility used as a business headquarters.
17% of small businesses are managed from a residence.
TYPE OF FACILITY USED AS BUSINESS HEADQUARTERS1 N=4,745
(% of employer firms)
Facility rented by business 58%
Facility owned by business 19%
A residence 17%
Rent-free space provided
by owner, nonprofit, or 1% 2%
other firm
Virtual location 1%
CHANGE IN RENT, Prior 12 Months1,2 N=2,698
(% of employer firms that rent a facility)
Mobile location 1%
18%
Other 1%
31% 49% of firms
reported a
rent increase
46%
Large increase3
Small increase3
No change
Small decrease3
2%
2% Large decrease3
1 Percentages may not sum to 100 due to rounding.
2 Approximately the second half of 2018 through the second half of 2019.
3 “Large” refers to a change of 4% or greater. “Small” refers to a nonzero change that is less than 4%.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 29
FACILITIES (CONTINUED)
NUMBER OF TIMES RELOCATED IN THE PAST 5 YEARS (% of employer firms) N=4,756
69% 23% 6%
2%
Did not relocate Once Twice More than twice
Of firms that relocated, most moved for the purpose of obtaining a larger or
more suitable space. One-fifth also cited lower cost or rent as a factor.
REASONS FOR RELOCATION1 (% of employer firms that relocated) N=1,394
Larger/more suitable space 49%
Lower cost/rent 20%
Better location 17%
Owner's personal/family
16%
reasons
Lost lease on previous space 12%
Purchased a building 9%
Other 8%
1 Respondents could select multiple options.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS Source: Small Business Credit Survey, Federal Reserve Banks 30
METHODOLOGY
DATA COLLECTION For the Employer Firms Report and analysis,3 slightly from those used to create the U.S.
we first limit the sample in each year to only weight.7 State weights are generated for
The Small Business Credit Survey (SBCS) uses
employer firms. We then post-stratify respon- states that have at least 100 observations
a convenience sample of establishments.
dents by their firm characteristics. Using a and that remain below a volatility threshold.
Businesses are contacted by email through
statistical technique known as “raking,” we Estimates for Federal Reserve Districts are
a diverse set of organizations that serve
compare the share of businesses in each calculated based on all small employer firms
the small business community.1 Prior SBCS
category of each stratum4 (e.g., within the in any state that is at least partially within a
participants and small businesses on pub-
industry stratum, the share of firms in the District’s boundary. Federal Reserve District-
licly available email lists2 are also contacted
sample that are manufacturers) to the share level weights are created for each District
directly by the Federal Reserve Banks. The
of small businesses in the nation in that using the weighting process described
survey instrument is an online questionnaire
category. As a result, underrepresented firms previously, but based on observations in
that typically takes 6 to 12 minutes to com-
are up weighted and overrepresented busi- the relevant states.
plete, depending upon the intensity of a firm’s
nesses are down weighted. We iterate this
search for financing. The questionnaire uses
process several times for each stratum to
question branching and flows based upon RACE/ETHNICITY AND GENDER
derive a sample weight for each respondent.
responses to survey questions. For example, IMPUTATION
This weighting methodology was devel-
financing applicants receive a different line of
oped in collaboration with the National Nine percent of employer firm respondents
questioning than nonapplicants. Therefore,
Opinion Research Center (NORC) at the did not provide complete information on the
the number of observations for each question
University of Chicago. The data used to gender, race, and/or the ethnicity of their busi-
varies by how many firms receive and com-
construct the weights originates from ness’ owner(s). This information is needed to
plete a particular question.
the U.S. Census Bureau.5 correct for differences between the sample
and the population data. To avoid losing these
WEIGHTING We are unable to obtain exact estimates of observations, a series of statistical models is
the combined racial and ethnic ownership of used to impute the missing data. Generally,
A sample for the SBCS is not selected ran-
small employer firms for each state, or at the when the models are able to predict with an
domly; thus, the SBCS may be subject to bi-
national level. To derive these figures, we as- accuracy of around 80 percent in out-of-
ases not present with surveys that do sample
sume that the distribution of small employer sample tests,8 the predicted values from the
firms randomly. For example, there are likely
firm owners’ combined race and ethnicity is models are used for the missing data. When
small employer firms not on our contact lists,
the same as that for all firms in a given state. the model is less certain, those data are not
which could lead to noncoverage bias. To con-
Given that small employer firms represent imputed and the responses are dropped.
trol for potential biases, the sample data are
99.8% of businesses with paid employees,6 After data are imputed, descriptive statistics
weighted so the weighted distribution of firms
we expect these assumptions align relatively of key survey questions with and without
in the SBCS matches the distribution of the
closely with the true population. imputed data are compared to ensure stability
small (1 to 499 employees) firm population
of estimates. In the final sample, 8 percent
in the United States by number of employees, In addition to the U.S. weight, state- and of employer firm observations have imputed
age, industry, geographic location (census Federal Reserve District-specific weights are values for either the gender, race, or ethnicity
division and urban or rural location), gender created. While the same weighting methodol- of a firm’s ownership.
of owner(s), and race or ethnicity of owner(s). ogy is employed, the variables used differ
1 For more information on partnerships, please visit www.fedsmallbusiness.org/partnership.
2 System for Award Management (SAM) Entity Management Extracts Public Data Package; Small Business Administration (SBA) Dynamic Small Business Search
(DSBS); state-maintained lists of certified disadvantaged business enterprises (DBEs); state and local government Procurement Vendor Lists, including minority- and
women-owned business enterprises (MWBEs); state and local government maintained lists of small or disadvantaged small businesses; and a list of veteran-owned
small businesses maintained by the Department of Veterans Affairs.
3 Weights for nonemployer firms are computed separately, and a report on nonemployer firms is also issued annually.
4 Employee size strata are 1–4 employees, 5–9 employees, 10–19 employees, 20–49 employees, and 50–499 employees. Age strata are 0–2 years, 3–5 years, 6–10
years, 11–15 years, 16–20 years, and 21+ years. Industry strata are non-manufacturing goods production and associated services, manufacturing, retail, leisure and
hospitality, finance and insurance, healthcare and education, professional services and real estate, and business support and consumer services. Race/ethnicity
strata are non-Hispanic white, non-Hispanic black or African American, non-Hispanic Asian, non-Hispanic Native American, and Hispanic. Gender strata are
men-owned, equally-owned, and women-owned. See Appendix for industry definitions, urban and rural definitions, and census divisions.
5 State-level data on firm age come from the 2014 Business Dynamics Statistics. We derive industry, employee size, and geographic location data from the 2017 County
Business Patterns. Data from the Center for Medicare and Medicaid Services are used to classify a business’ zip code as urban or rural. Data on the race, ethnicity,
and gender of business owners are derived from the 2016 Annual Survey of Entrepreneurs.
6 U.S. Census Bureau, County Business Patterns, 2017.
7 Both use five-category age strata: 0–5 years, 6–10 years, 11–15 years, 16–20 years, and 21+ years; and both use two-category industry strata: (1) goods, retail, and
finance, which consists of non-manufacturing goods production and associated services, manufacturing, retail, and finance and insurance; (2) services, except
finance, which consists of leisure and hospitality, healthcare and education, professional services and real estate, and business support and consumer services.
8 Out-of-sample tests are used to develop thresholds for imputing the missing information. To test each model’s performance, half of the sample of non-missing data
is randomly assigned as the test group while the other half is used to develop coefficients for the model. The actual data from the test group are then compared with
what the model predicts for the test group. On average, predicted probabilities that are associated with an accuracy of around 80 percent are used, although this
varies slightly depending on the number of observations that are being imputed.
SMALL BUSINESS CREDIT SURVEY | 2020 REPORT ON EMPLOYER FIRMS 31
METHODOLOGY (CONTINUED)
To impute owners’ race and ethnicity, a series
Table 1: Credibility Intervals for Key Statistics in the 2019 Report on Employer Firms
of logistic regression models is used that
incorporate a variety of firm characteristics, Percent Credibility Interval
as well as demographic information on the Share that applied 43.2% +/-2.0%
business headquarters’ zip code. First, a Share with outstanding debt 71.1% +/-1.8%
logistic regression model is used to predict if Profitability index¹ 33.2% +/-3.8%
business owners are members of a minority Revenue growth index¹ 34.0% +/-3.2%
group. Next, for firms classified as minority-
Employment growth index¹ 21.1% +/-2.9%
owned,9 a logistic probability model is used to
Loan/line of credit and cash advance approval rate² 78.9% +/-3.0%
predict whether the majority of a businesses’
Seeking financing to cover operating expenses³ 43.0% +/-2.7%
owners are of Hispanic ethnicity. Finally, the
Seeking financing to expand/pursue new opportunity³ 55.5% +/-3.1%
race for the majority of a business’ owners
Percent of nonapplicants that were discouraged⁴ 14.8% +/-2.0%
is imputed separately for Hispanic and non-
Hispanic firms using a multinomial logistic Table notes:
1 For revenue and employment growth, the index is the share reporting growth minus the share reporting a reduction.
probability model. For profitability, it is the share profitable minus the share operating at a loss at the end of the prior year.
2 The share of loan and line of credit applicants that were approved for at least some financing.
A similar process is used to impute the gender 3 Percent of applicants.
4 Discouraged firms are those that did not apply for financing because they believed they would be turned down.
of a business’ owner(s). First, a logistic model
is used to predict if a business is primarily
owned by men. Then, for firms not classified
as men-owned, another model is used to Due to changes in the weighting methodol- CREDIBILITY INTERVALS AND
predict if a business is owned by women or ogy of over-time data, the time series data in STATISTICAL TESTS
is equally owned. this report supersedes and is not comparable
The analysis in this report is aided by the
with the time series data (2015–2017 survey
use of credibility intervals. Where there are
years) in the Employer Firms Report published
COMPARISONS TO PAST REPORTS large differences in estimates between types
in May 2018. Compared to those previous
of businesses or survey years, we perform
Because previous SBCS reports have varied reports, the updated weighting scheme in this
additional checks on the data to determine
in terms of the population scope, geographic and last year’s reports makes use of a greater
whether such differences are be statistically
coverage, and weighting methodology, some number of variables (it includes the race, eth-
significant. The combination of the results
survey reports are not directly comparable nicity, and gender of a business’ ownership),
of these tests and several logistic regression
across time. The employer report using 2015 and is thus more representative of the U.S.
models helped to guide our analysis and de-
survey data covered 26 states and is weighted small employer firm population. 2015 Survey
cide on the variables to include in the report.
by firm age, number of employees, and year data are not displayed in this report, as
In order to determine whether differences are
industry. The employer reports using 2016 they lack information on the aforementioned
statistically significant, we develop credibility
and 2017 data included respondents from all variables. The data in this report is, however,
intervals using a balanced half-sample ap-
50 states and the District of Columbia. These comparable to the report containing 2018
proach.10 Because the SBCS does not come
data are weighted by firm age, number of survey data that was published in 2019. For
from a probability-based sample, the credibil-
employees, industry, and geographic location more information on the methodological
ity intervals we develop should be interpreted
(both census division and urban or rural loca- changes to the “time-consistent” weights,
as model-based measures of deviation from
tion). The 2017 survey weight also included please refer to the methodology section of the
the true national population values.11 We list
gender, race, and ethnicity of the business 2019 Report on Employer Firms.
95 percent credibility intervals for key statis-
owner(s), as described previously.
In addition, many survey questions are not tics in Table 1. The intervals shown apply to
In addition, the categories used within each comparable over time due to changes in the all employer firms in the survey. More granular
weighting characteristic have also differed response options. For example, the option results with smaller observation counts will
across survey years. For instance, there were “Finance company” was added as an ap- generally have larger credibility intervals.
three employee size categories in the 2015 plication source in the 2019 survey; thus, the
survey and five employee size categories in application rates by source displayed in
the 2016 and 2017 surveys. Finally, some the 2020 report are not directly comparable
survey questions have changed over time, to prior years’ reports.
limiting question comparisons.
9 For some firms that were originally missing data on the race/ethnicity of their ownership, this information was gathered from public databases or past SBCS surveys.
10 Wolter (2007), Survey Weighting and the Calculating of Sampling Variance.
11 AAPOR (2013), Task Force on Non-probability Sampling.
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