Mike O'Donnell | Nov. 20, 2019

A Brief Look into the Near Future

Most people are unaware of the fact that in addition to moving interest rates up and down every so often, sometimes for random and inexplicable reasons, the twelve Federal Reserve banks collaborate each year on a national survey of small business credit, which has now become the preeminent indicator of what demand for credit might look like for small businesses over the next twelve months.

Last year’s survey was a harbinger of small businesses with employees anticipating stronger revenue and employment growth in 2019, with increasing demand for expansion credit. The survey also anticipated more small businesses looking outside the banking system to on-line lenders for financing despite the fact that the FDIC team still doesn’t really see on-line lenders as competitors to the banking system. Even though they are.

And yes, the most recent quarterly data indicates that bank lending to small businesses has been up this year despite the baseless and unfounded fears of an “imminent” downturn. While consumer spending has been solid all year, unemployment levels are now at a 50-year low, in addition to more and more opaque and incredibly expensive online lenders popping up to lure small businesses away from more affordable traditional financing mechanisms.

Now it is time for the 2019 year-end survey of small business credit! Colorado Lending Source is one of 300+ organizations that has partnered with the Federal Reserve to spread the word about this ten minute survey to every small business in Colorado that has the time and inclination to share information on the conditions they are facing and expect to face in 2020. This information is essential!  It’s a message that is shared to those in charge of public policy in the United States, whomever that happens to be these days.

Although responses to the survey are completely anonymous, the Federal Survey will aggregate data provided by small businesses that complete the unique Colorado Lending Source survey link, which you can access by clicking HERE, and report this data back to us so we can see how respondents view credit challenges and future hiring plans specific to the Colorado region.

These insights and comparisons with the national data highlight some key differences in the way small business operate in Colorado versus the rest of the nation.

One of our biggest takeaways from the data from the last survey was that around 40% of the small businesses surveyed in Colorado had applied for some sort of financing during 2018, which was a little less than 43% of the national number, while 64% of Colorado-based businesses seeking financing had their funding needs completely met. This was a much higher number than the 47% nationally, indicating that either:

(a) Lenders are more small business friendly in Colorado than elsewhere.

(b) Small businesses are better prepared/more credit worthy in Colorado than in other states.

There were some other key differentiating aspects of the Colorado data subset worth noting too: more woman-owned businesses and more rural-based businesses (using the proper definition of “rural” and not the imaginary one that the SBA adopted in 2018) responded to the Colorado Lending Source survey link versus the national data so the Colorado sample was actually much more representative of the overall small business industry than the national data.

The Colorado data indicated that significantly more small businesses were anticipating increased revenues for 2019 too, echoing the strength we continue to see in the overall Colorado economy versus those of other states.

Colorado respondents were also a lot less likely to have credit card debt and more likely to use a term loan or line of credit when they had a need for expansion financing, indicating a much higher level of financial literacy and acumen in Colorado than elsewhere. 

But by far the biggest single result from the survey, one that slaps you in the face and has the potential to keep a career banker up at night, is the observation that the share of small businesses seeking credit or cash advances from on-line lenders, continues to grow year-over-year, despite the extraordinarily high interest rates that on-line lenders delight in charging. Over the last three Federal Reserve surveys, this number of on-line seekers has grown from 19% to 32% of all small businesses looking for financing, and will likely even be higher again still, once the results of this current survey are compiled.

Which brings me to the point of this little article. We would like to expand access to the survey so we can collect more meaningful data on the credit needs of small businesses in Colorado. If you are a small business and have ten minutes to share your responses OR if you are able to share the link with the small businesses you interact, please do so!

The more respondents we get, the more meaningful the data will be for everyone in Colorado. The deadline to complete the survey is December 20th. Thank you so much for your participation!

Click here to complete the survey!