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Richmond Fed at a Glance

June 2018

Small Business Optimism Highest in Years

Small business

Optimism about future performance among employer firms reached its highest level in several years according to results from the “2017 Small Business Credit Survey: Report on Employer Firms” released last week. The report focuses on small employer firms, or businesses that have between 1–499 full- or part-time employees. The 12 Federal Reserve Banks annually survey small business owners nationwide about their financing and debt needs and experiences. The Reserve Banks’ new website,, serves as a hub for small business research, analysis and thought leadership.

The report found the share of firms reporting profitability, revenue growth and employment growth all increased from the 2016 survey. For the coming year, a net 66 percent of firms anticipate revenue growth and a net 44 percent expect to hire new employees. More firms received all of the financing requested, and a significant portion did not apply for credit because they already had sufficient financing. Applicants sought financing most frequently at large banks (48 percent), small banks (47 percent) and online lenders (24 percent).

Despite the overall reported success in economic performance, 64 percent of firms experienced financial challenges. The most common challenges were paying operating expenses (40 percent) and credit availability (30 percent). There were particular segments more vulnerable to financial challenges, including those with less revenue ($100,000 or less), younger firms (5 years or less) and the leisure and hospitality industry. Firms most often addressed financial challenges by using personal funds (67 percent).

“This year’s report continues to show the connection between personal finances and small business finances,” said Shannon McKay, regional community development research manager. “It reveals that most small business owners are relying on their personal credit score to obtain financing and personal funds to address financial challenges. Yet personal loans have one of the lowest approval rates among the credit products applied for. Our findings highlight opportunities for educating current and future entrepreneurs about the importance of consumer finance and credit repair.”

For the Fifth District as a whole and some of its individual states, there were statistically significant differences from the national numbers for certain measures, including financial challenges, growth expectations, reliance on personal finances, loan/line of credit sources and factors associated with application choices. Fifth District firms have higher expectations for employment growth for the next 12 months (46 percent) relative to firms nationally (43 percent). A larger share of Fifth District firms (40 percent) reported not experiencing any financial challenges (versus 36 percent nationally).

Fewer firms in Maryland (35 percent) and Virginia (44 percent) compared to firms nationally (50 percent) reported relying on the owners’ personal credit score to obtain financing. A smaller share of firms in South Carolina (1 percent) and Virginia (1 percent) applied to community development financial institutions (CDFIs) compared to firms nationally (5 percent). Forty-two percent of firms in North Carolina said that the lack of a collateral requirement influenced where they applied compared to 26 percent of firms nationally. A larger share of firms in Maryland (42 percent) and Virginia (41 percent) were influenced by a recommendation or referral on where they should apply for financing than firms nationally (30 percent). Additional Fifth District and state level results are available for downloading.

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Jim Strader (804) 697-8956 (804) 332-0207 (mobile)