New Fed study also reveals unmet credit needs remain an important issue for small businesses

The Federal Reserve Bank of New York today released Access to Credit: Poll Evidence from Small Businesses—results from a poll of small businesses in the region, as a part of the Bank’s Community Affairs Facts & Trends series. The results showed that during the first half of 2010:

• 59% of poll respondents applied for credit, demonstrating existing demand;
• Over two-thirds of poll respondents experienced sales/revenue declines, implying a broad weakening of small business finances; and
• Only half of small business applicants received credit, and 75% reported receiving only ‘some’ or ‘none’ of the credit they wanted.

Small businesses typically create more jobs than larger firms do at the start of economic recoveries. However, recent contractions in borrowing have limited the ability of small businesses to play this critical role. This small business report evaluates three potential causes of the recent decline in small business lending: weak demand, weakened applicant quality, and restricted credit availability. It finds evidence of existing demand, weakened business finances, and credit gaps. The report presents new data from 426 regional small businesses (NY, NJ, CT and PA) on their financial well-being, credit needs and recent borrowing experiences.

“Until now, we’ve only heard anecdotally about difficulties for regional small businesses in obtaining credit without any numbers to confirm this,” said Kausar Hamdani, senior vice president and Community Affairs officer at the Federal Reserve Bank of New York. “A main purpose of this poll was to hear directly from small businesses about their recent credit experiences and to analyze them systematically in order to learn more about where the largest obstacles exist.”

Developed by the New York Fed’s Community Affairs department, the Facts & Trends series provides analytical summaries intended to present key facts on topical issues to assist governments, community advocates and others to better understand, monitor and address specific economic concerns within the Federal Reserve’s Second District. The data for this poll were collected online with the help of local public and nonprofit partnerships.

Access to Credit: Poll Evidence from Small Businesses

Contact:
Jeffrey Smith
(212) 720-6139
(646) 720-6139
jeffrey.smith@ny.frb.org