Loan demand down as company owners turn to personal funds

Fewer small employers in the U.S. sought loans and other financing toward the end of last year as many companies dealt with fiscal challenges.

That’s the finding of a survey of more than 8,100 companies released last week by the 12 regional Federal Reserve Banks. The survey showed that demand for financing fell, with 40 per cent of companies seeking funding, down from 45 per cent a year earlier.

Meanwhile, 64 per cent of the companies reported they had financial challenges. Forty per cent said paying operating expenses was a challenge and 30 per cent said it was difficult to get credit. Companies that struggled the most were startups and those with revenue up to $100,000. Not surprisingly, many companies with financial challenges, 67 per cent, turned to personal funds to help relieve a cash crunch — they likely believed they’d be rejected if they applied for loans.

Forty-eight per cent sought loans from large banks, while 47 per cent tried to borrow from small banks. Twenty-four per cent applied to online lenders, and 18 per cent sought loans from auto or equipment dealers; farm lenders; relatives and friends and nonprofits and other non-financial organizations. (The figures add up to more than 100 per cent because some companies applied to multiple sources.)

And more businesses were successful in obtaining financing than in 2016, with 46 per cent versus 40 per cent getting approvals. Fifty-eight per cent of loan and credit applications were more successful, getting all the funds they requested. That was up from 53 per cent in 2016.

The survey was conducted in the third and fourth quarters of last year and questioned companies that had up to 499 employees.