Survey Shows Revenues and Hiring Strong for Small Firms in 2018

ST. LOUIS – The 12 Federal Reserve Banks issued the Small Business Credit Survey: 2019 Report on Employer Firms, which examines the results of an annual survey of small business owners nationwide. The report focuses on small employer firms, businesses that have between 1 and-499 full- or part-time payroll employees.

Fielded in the third and fourth quarters of 2018, the report showed that revenue and employment growth both improved year over year, but profitability remained the same. The outlook for 2019 is more tempered, the survey found. While credit demand increased marginally in 2018, the number of firms receiving credit remained essentially flat. Firms with high credit risk and startups continued to have financing shortfalls. Online lenders in particular saw applications increase by approximately one-third, even though applicants were more dissatisfied with the interest rates offered.

Other national key findings include:

•    More than one-third of small firms (37%) reported adding payroll employees in 2018.

•    Expectations for 2019 are mixed with a majority of firms expecting revenues to increase but the net share of firms expecting payroll job growth to decline.

•    Nearly two-thirds of firms (64%) continued to experience financial challenges, including difficulties with managing operating expenses, scarcity of credit, and challenges making debt payments.

•    Respondents showed consistent year-over-year demand for new financing, with 43% of firms applying for new capital in 2018, similar to 40% in 2017.

•    Nearly half of applicants (47%) received funding for the full amount they requested, similar to the 2017 survey.

Key findings specific to the St. Louis Fed’s district include:

•    Eight District firms turned to small banks for funding more often than the national average, with 56% applying to small banks, compared to 44% nationally.

•    In the Eighth District, 36% of firms reported difficulties affording operating expense. However 39% of Eighth District firms reported no financial challenges at all.

•    More than half (57%) of firms in the Eighth District—which includes all of Arkansas and parts of Illinois, Indiana, Kentucky, Missouri, Mississippi and Tennessee—applied for financing in prior 12 months to expand their business or fund a new opportunity.

This survey is the latest addition to the Reserve Banks’ hub for small business research and analysis, FedSmallBusiness.org. Additional analysis of the 2018 Small Business Credit Survey will be released throughout 2019 and provide an in-depth look into specific types of small businesses, including non-employer firms, minority-owned firms, and firms operating in low- and moderate-income communities.