WASHINGTON—Most small businesses are not equipped to handle a long-term loss in revenue, according to the latest Small Business Credit Survey from the Federal Reserve.
The survey, which was based on responses collected in the third and fourth quarter of 2019, prior to the outbreak of the coronavirus in the U.S., serves as a benchmark for how these firms entered the crisis period and highlights the challenges many were already facing, reported Keith Leggett, the former senior vice president and senior economist at the ABA.
In the last 12 months, 66% of small businesses faced financial challenges with paying operating expenses being the most frequent cited financial challenge at 43%, the study shows.
Seventeen percent of small businesses said that they would have to close or sell if they experienced a two-month loss in revenue, according to the survey.
Over the last five-years, the primary source of funding for small employers was personal savings, family, or friends at 56%. This was followed by banks at 44%. Credit unions as a source of funding was 6%, Leggett noted in his analysis.
Other Findings
In addition, the share of firms that applied for financing remained flat at 43% between 2018 and 2019. Large banks received the most credit applications from small businesses (40%) during the survey period, followed by small banks (36%), online lenders (33%), finance companies (18%), credit unions (9%) and CDFIs (3%).