Federal Reserve regional survey: Smallest companies have harder time getting loans approved

The smallest of businesses have a harder time being approved for loans than their larger counterparts, a recent survey says.

According to the survey, released Thursday by four regional Federal Reserve Banks, 52 percent of businesses with revenue under $250,000 a year said they were rejected for a loan during the first half of 2014. Half of businesses with revenue between $250,000 and $1 million also couldn't get a loan.

Bigger companies fared better. Loans were approved for 80 percent of businesses that made $10 million or more and 78 percent of businesses that made between $1 million and $10 million.

When seeking a loan, most small business head to a bank, the survey found. Small regional or community banks had the highest loan approval rate, at 59 percent, followed by 45 percent at large regional banks, and 31 percent at large national banks.

But some are turning to online lenders for cash, which approved loans at a higher rate than large national banks. About one in five small businesses applied for funding from an online lender, with 38 percent of those getting approval, the survey said.

Online lenders, such as On Deck Capital Inc., LendingClub Inc., Kabbage and others, have been growing since the 2007 recession, when small business lending by banks slowed. Online lenders make the application process easier and faster than a bank, and borrowers are often approved within a couple of days. But online lenders generally charge more than banks, and the loans usually have to be paid back quicker.

According to the survey, 45 percent said a low credit score was a reason they were denied for their full loan request. Other reasons were not having enough collateral or weak business performance.

More than half of those that applied for credit wanted $100,000 or less, with 40 percent seeking to use the money to grow their business.

The report questioned 2,014 businesses with 500 employees or less in 10 states: Alabama, Connecticut, Florida, Georgia, Louisiana, New Jersey, New York, Ohio, Pennsylvania and Tennessee. The report was released by the Federal Reserve Banks of Atlanta, Cleveland, New York and Philadelphia.