Over the last few years, the improving economy has brought many small business owners up to improved levels of operation, and potentially positioned their companies to expand appreciably over a relatively short period of time. That, in turn, has likely put a growing number of small businesses in a position to seek financing from lenders, and while the results when applying have been mixed, the demand continues to grow.
In the first half of last year, about 22 percent of all small businesses applied for at least some financing, according to the latest Small Business Credit Survey from the Federal Reserve Banks of New York, Atlanta, Cleveland and Philadelphia. However, data suggests that the bigger the firm, the greater the demand for credit was, as companies with less than $1 million in annual revenues sought far less credit than their larger competitors.
In fact, 30 percent of firms with between $250,000 and $10 million in yearly revenues sought credit, and 58 percent of those with more than $10 million did the same, the report said. By contrast, only 18 percent of companies with less than $250,000 tried to obtain any sort of financing in the six-month period.
How much did they want, why, and from whom?
Interestingly, though, when it came to the amount of money sought in such a transaction, more often than not the amount was relatively small, the report said. More than half of applicants tried to get $100,000 in financing or less. In addition, about 2 in 5 said that the reason they applied was so that they could have the money to expand their companies, as most firms that filed were growing and had borrowed in the past. About 1 in 3 also said they had seen their costs rise in the previous 12 months.
And in general, smaller companies tended to seek credit from either major national banks or lenders in their areas, but close to 20 percent did so online, the report said. About 60 percent of those who sought financing from traditional lenders received at least some funding as a result.
Owners who want to make their companies as streamlined as possible so that they’re attractive to lenders may want to consider the benefits of cutting costs for small business insurance. For instance, finding more affordable liability insurance could free up thousands of dollars annually.