Loan demand down as company owners turn to personal funds

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. Fifty-eight 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.

BANKING BILL

Small business advocacy groups are praising the passage and enactment of a bill that eased some of the restrictions of the Dodd-Frank 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.

The new law "lifts inappropriate requirements and red tape from smaller financial institutions, which in turn will improve lending to small businesses," said Karen Kerrigan, CEO of the Small Business & Entrepreneurship Council.

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

FEDERAL CONTRACTING GOAL

The government met its goal of awarding at least 23 percent of federal contracting dollars to small businesses last year, the Small Business Administration said last week.

Small companies got 23.88 percent of contracting funds, for a total of $105.7 billion, up $5 billion from 2016. It was the fifth straight year that the government reached the 23 percent goal set by Congress.

The government didn't reach its goal of giving women-owned businesses 5 percent of contracting dollars, for the second straight year. Companies owned by women got 4.7 percent of contract funds.

The government did surpass its 3 percent goal for contracting funds for businesses owned by veterans disabled while in the military; 4.1 percent of contracting dollars went to those companies. Small disadvantaged businesses, those with an owner who is socially or economically disadvantaged, got 9.1 percent of contracting dollars, surpassing the 5 percent goal.

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Follow Joyce Rosenberg at www.twitter.com/JoyceMRosenberg . Her work can be found here: https://apnews.com/search/joyce%20rosenberg