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Friday, January 16, 2015

Fed Survey: Community Banks Remain Key to Small Business Growth

Community banks have a critical role in funding fast-growing small businesses, according to a survey released by four regional Federal Reserve Banks. Of the 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 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.

Read the survey report.

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