Demand falls for company financing

Fewer small employers 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 percent of companies seeking funding, down from 45 percent a year earlier.

Meanwhile, 64 percent of the companies reported they had financial challenges. Forty percent said paying operating expenses was a challenge and 30 percent 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 percent, turned to personal funds to help relieve a cash crunch — they likely believed they'd be rejected if they applied for loans.

Forty-eight percent sought loans from large banks, while 47 percent tried to borrow from small banks. Twenty-four percent applied to online lenders, and 18 percent 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 percent because some companies applied to multiple sources.)

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

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

Small business advocacy groups are praising the passage and enactment of a bill that eased some of the restrictions of the DoddFrank law. The Economic Growth, Regulatory Relief, and Consumer Protection Act lessened regulations on small financial institutions including community banks whose customers include many small businesses.

Small business and banking industry advocates have said that Dodd-Frank, which was passed by Congress in 2010 in response to the banking industry crisis that began in 2008, has sharply curtailed lending to small companies. The U.S. has lost more than a quarter of its community banks in the decade since the financial crisis, according to the Federal Deposit Insurance Corp. While there have been hundreds of bank failures, many small banks have been forced to merge or were bought by larger institutions.

U.S. Chamber of Commerce President Thomas Donohue said the law “will help restore access to financing for Main Street.”

Simon Dawson / Bloomberg William Dudley, president and CEO of the Federal Reserve Bank of New York, speaks during an event in London in this file photo.