Community Banks Effect on the Economy

The Federal Reserve Banks of New York, Atlanta, Cleveland & Philadelphia released the Joint Small Business Credit Survey Report of 2014. The report gives a snapshot of small business lending activity across 10 states. Started in 2010 by the New York Fed, The Small Business Credit Survey gathers information about small business performance, financing needs and borrowing experiences. In the report, it notes that Community banks play a critical role in funding fast-growing small businesses. According to a survey, 22% of small businesses that applied for credit in the first half of 2014, 34% applied to a community bank, and of those, 59% saw their applications approved.

Community banks were aggressive in meeting small business credit needs, with 90% of newer firms with profits and growing revenues getting approvals. Of these high-growth firms, about half received credit approvals from money center and regional banks. Larger banks focused their approvals on mature small businesses, according to the survey.

The survey also found significant variability in what kinds of small business applied for credit. Just 18% of “microbusinesses” — those with under $250,000 in annual revenues — applied, while 58% of businesses with revenues over $10 million did. Microbusinesses were more likely to fund operations and growth out of personal savings.

Small businesses that sought credit were primarily seeking to expand. Nearly half sought a line of credit, about one-third applied for a business loan, and a quarter applied for a credit card. Twenty-three percent of applicants sought a Small Business Administration loan. Most applicants sought under $100,000 in financing.

Among the survey’s more hopeful findings was that nearly 40 percent of small businesses seeking credit said their primary purpose was to expand their business. Other interesting findings include:

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  • Over half of the credit applicants sought loans or lines of credit of $100,000 or less.
  • One-third of the businesses indicated that their financing costs have increased over the last 12 months.
  • The top reason given for being rejected for a loan was a low credit score.
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