Small businesses in the United States are the major jobs creating sources; however last year only 40% received the full amount of private financing they actually required, according to Federal Reserve survey. The Federal Reserve’s nationwide survey explained that the 36% of small businesses with less than 500 employees get only some of the funding they need, while 24% of small businesses get nothing.
The annual survey carried out by the 12 Federal Reserve Banks offers a look into the situations that small businesses are experiencing, which explain more than 50$ of all US jobs, and 66% of new jobs created since the 1970s.
Despite the fact that the small businesses in the United States are typically profitable and productive, a growing number of small businesses are also experiencing some sort of financial challenges, with business owners getting more debt and draining their own pockets to pay for the business expenses.
The smaller your business is, the less likely it was to get the business funding and the more likely it was based on your personal finances to stay open and running effectively. According to the survey conducted by the 12 Federal Reserve Banks, these obstructions are stopping small businesses from developing and growing.
Among the surveyed small businesses, almost 61% were expecting revenues to increase and almost 39% of businesses expect to create jobs this year.
At the meantime, however, 61% of small businesses said that they experienced some sort of financial challenges in last year, including 44% businesses that had issues getting the credit they required, and 36% that had so many obstacles in meeting their operational expenses.
When confronted with financial shortcomings, 76% use their personal money before getting more debt (44%). Majority of the small business owners who took out funding (87%) used their personal credit scores to borrow the cash. 44% small businesses said that they managed the situation by way of making late payments and the 43% businesses fix this by downsizing.
The Summary of Benefits and Coverage survey consists of responses from 10,303 businesses with almost 500 or less workers, which add up to 99.7% of all U.S. employers, about their businesses, financing requirements as well as borrowing experiences. The survey respondent businesses came from all 50 states of the United States and the District of Columbia, and were much more than the response from the 2015 survey.
One Federal Reserve official reported that this emphasizes the importance for the small business owners to establish and maintain excellent personal credit on the way to grow their small businesses. He also added that the 2008 financial crisis also screwed small businesses.
Businesses that generate small revenue also reported continuous gaps in their ability to get funding, in part because of low credit scores or unsatisfactory credit score histories.
Almost 45% of small businesses applied for funding, with 76% of businesses doing so because of the fact that they just had experienced some financial problems. Of those small businesses, 55% applied for $100,000 or less financing, and 74% applied for $250,000 or less financing. Small businesses with almost $1 million or less in annual revenue, the challenges and their dependence on personal budget is far more distinct as compared to large businesses that have more than $1 million in revenue.
Small businesses have been much more likely than big businesses to experience financial obstacles; based more on your personal finances and personal credit scores; and experience less success in getting funding from large banks.
Among businesses who didn’t apply for financing, 17% of small businesses said that they never concerned because they believed that they would be rejected. The report also describe that these financial obstacles are specifically most important for the US macroeconomy, as these businesses are the major source of job growth in the United States.
The 12 Federal Reserve Banks stated that the future reports will probably have more details on small business types, such as micro businesses, startup businesses, and minority owned businesses particularly in Ohio.