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Cover of the Report on Employer Firms based on the 2016 Small Business Credit Survey

While many small businesses with employees were profitable and optimistic in 2016, a significant majority faced financial challenges, experienced funding gaps and relied on personal finances.

2016 Small Business Credit Survey: Report on Employer Firms

The Small Business Credit Survey (SBCS), a national collaboration of the Community Development Offices of the 12 Federal Reserve Banks, is designed to provide timely information on small business financing needs, decisions, and outcomes to policy makers, researchers, and service providers. Intelligence on small firms' financing needs and gaps is fundamental to understanding and bolstering the sector's health and growth. The survey findings are complementary to national data on aggregate lending volumes and lender perceptions.1

The 2016 SBCS, which was fielded in Q3 and Q4 2016, yielded 10,303 responses from employer firms in 50 states and the District of Columbia.2 The report findings provide an in-depth look at small business performance and debt at the end of 2016.

Heading into 2017, small businesses expressed continued optimism while also reporting trouble making ends meet and accessing credit.

Overall, the survey finds:

  • Steady performance, but signs of slowing revenue growth and strains on operating funds.
  • Persistent credit gaps for smaller-revenue firms (annual revenues of $1M or less), stemming in part from weak credit scores and insufficient credit histories.
  • Higher approvals for smaller-revenue firms at community development financial institutions (CDFIs), small banks, and online lenders than at large banks. Borrower satisfaction among all applicant firms is highest at small banks, credit unions, and CDFIs.
  • A common connection between personal finances and business financing, even for larger-revenue firms (annual revenues greater than $1M). The majority of small businesses report using personal credit scores when applying for business capital.

More detailed findings include:

Steady performance, but signs of slowing revenue growth

  • In 2016, a majority of firms reported that they were profitable and had growing revenues, similar to 2015. The net share reporting revenue growth, however, declined from 2015.3
  • Sixty-one percent of employer firms faced financial challenges in the last year.4
  • The most common way firms cope with challenges is by self-funding—76% of business owners used personal funds to fill the gap. Firms also reported taking on additional debt (44%), making a late payment (44%), or downsizing (43%).
  • More firms applied for funding to cover operating expenses in 2016 than did in 2015 (45%, up from 37%).3

Continued optimism, but modest debt expectations

  • Most firms are optimistic about the future, expressing expectations for 2017 similar to those they held for 2016;3 a net 61% expect revenues to grow and a net 39% anticipate job growth in 2017.
  • At the same time, debt expectations are modest: 19% of firms expect to increase their debt level in 2017. Thirty-four percent of firms increased their debt level in 2016.

Personal finances underpin business financing—even for larger firms

  • Forty-two percent of small businesses rely exclusively on their owners' personal credit scores to secure debt; another 45% use both the owners' personal scores and business credit scores. Among larger-revenue firms, 25% rely exclusively on the owners' personal credit scores and another 53% use a personal credit score in combination with a business credit score.
  • Personal guarantees are the most common means of securing debt across smaller- and larger-revenue firms.

About half of nonapplicants have enough funding; a quarter are avoiding debt

  • Among nonapplicants, 47% indicated they have sufficient financing.
  • Debt aversion is fairly common—27% of nonapplicants said they didn't want to take on debt.
  • Seventeen percent of nonapplicants reported being discouraged, meaning they did not apply for financing because they believed they would be turned down.


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"); and the Board of Governors of the Federal Reserve System's "Senior Loan Officer Opinion Survey on Bank Lending Practices."

2 A total of 15,991 firms responded to the survey; 10,303 were employer firms.

3 In order to make time-series comparisons, data from prior years' surveys have been re-weighted to represent the nation as a whole. Therefore, the values and observation counts here may differ slightly from past reports. Please see p. 19 for more detail.

4 Financial challenges include: credit availability or securing funds for expansion, paying operating expenses, making payment on debt, and purchasing inventory or supplies to fulfill contracts.







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