A recent survey by the Federal Reserve’s 2015 study on small business credit reveals that lending to small businesses showed an improvement in 2015 versus 2014. However, the scenario remains more or less unchanged for startups and micro-businesses.
Surge in bank approvals
The data shows that approval rate surged to 80% in 2015 from 65% in 2014 while nearly 45% of businesses succeeded in getting full disbursement against 38% last year. The data reflects that the lending is ticking up, but it is still way behind pre-recession levels.
Another heartening sign is that the growth in financing is accompanied by an equivalent surge in profitability and revenue generation of as much as 3,500 businesses across 26 states. The government is seeing this data as a healthy sign, marking it as an element of a rebounding economy. Until 2014, lenders, mainly banks, shied away from extending loans to small businesses as they considered such lending as less profitable and riskier. However, the latest data is signifying a shift in such notions.
The bitter truth
But, one grey spot that remains is the scarcity of lending to micro businesses or start-ups. More than 50% of micro businesses failed to get funding in full and received less than half of the applied funding amount. This resulted in inadequate funds to cover even the operating expenses or expansion plans. The data suggests that as much as 63% of micro businesses did not get the adequate funding while 58% of the startups witnesses funds shortfall.
The data also revealed an interesting fact that most of the small business owners preferred to approach banks over alternative lending platforms despite the latter’s emerging popularity. Equally astonishing fact is that nearly 75% of businesses that received funds from small banks seemed happy while only 15% of borrowers through alternative channels seemed contended. Most common problems cited by the businesses for online lending options are higher interest rates, the ambiguity of terms of lending and less favourable repayment terms.