As the country continues to debate the best ways to support small business success, the question of accessing credit has taken on growing importance. Starting a business is an investment, and the availability of credit is an often overlooked but hugely important factor in determining whether Americans are able to cover startup costs or expand the business they’ve built. To better understand how small business owners feel about the issue of accessing credit, we surveyed 33,050 small business professionals on Thumbtack nationwide. Highlights of our findings include:
- Only 27 percent of full-time pros who sought credit received all or most of the amount they needed.
- Ten percent of full-time pros expect it to become harder to acquire credit in the next three months.
The Bootstrap Approach
When it comes to investing in their businesses, there are multiple places that small business owners turn. At the top of this list is self-funding, where business owners foot the bill without any outside help. According to our survey, 59 percent of small business owners working full time have invested personal savings into their business and 41 percent have used personal credit cards to cover their business costs. Friends and family are also important to small business growth—15 percent of respondents reported that they received loans from a friend or family member.
On the other hand, relatively few pros rely on bank loans (six percent), home equity lines of credit (four percent), loans from a peer-to-peer service like Lending Club (three percent), or Small Business Administration loans (two percent).
The Challenge of Accessing Credit
One in five of the full-time small business owners we surveyed report that access to credit is a problem they currently face in doing business, and 43 percent of those small business owners have sought access to credit in the last six months. Beyond simply accessing credit, many pros struggle to get the full amount of money that their business needs. Of those who sought credit in the last six months, only 27 percent received most or all of the credit they needed.
The struggle to access credit reached its peak in November 2016, with 34 percent of small business owners reporting that they were unable to get the capital they needed to start or grow their business. That number is now down by three percentage points at 31 percent. Among small business professionals struggling with credit, 19 percent were denied outright, 11 percent only received a portion of the credit they sought, and nine percent refused the offer they received because of terms or conditions attached.
For many small business owners, the issue of credit is also a crisis of faith. A full 35 percent of pros who reported that they would like to seek credit chose not to because they did not believe their loan application would be approved.
The Impact of Interest Rates
With the Federal Reserve poised to continue raising interest rates in 2017, many have speculated that borrowing costs for small business owners will increase. This doesn’t seem to be worrying small business owners, however. A majority of full-time Thumbtack pros expect that getting a loan will remain at the current level of difficulty (44 percent) or even become easier (20 percent) in the next three months. This expectation corresponds with our April Economic Sentiment Survey results, where we found that economic sentiment among small business owners in the U.S. is at a record high.
If rates do go up, nearly half of pros (49 percent) anticipate that the increase will affect whether and how fast they can grow their business. A smaller portion believes that higher interest rates will negatively affect how much they are willing to invest in their business (20 percent) and the number of employees they hire (10 percent).
As 2017 continues and the possibility of higher interest rates looms, it will be interesting to track how small business owners feel about the Federal Reserve generally, and whether higher rates will affect their business growth.
About the Thumbtack Economic Sentiment Survey
Every month, the Thumbtack Economic Sentiment Survey captures the attitudes and perspectives of thousands of business owners from across the country to gauge how they are feeling about the economy and their businesses. Now in its fifth year, this survey provides a unique vantage point on the economy, as respondents are largely mobile service professionals with five or fewer employees who operate across the United States. Because they are hard to reach, these professionals are frequently overlooked in other surveys of small businesses.