Small business outlook more subdued in 2019

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The 12 Federal Reserve Banks reported small businesses had a good year in 2018, with the outlook more tempered this year.

The findings were contained in the Small Business Credit Survey: 2019 Report on Employer Firms, which examines the results of an annual survey of small business owners nationwide. The Federal Reserve Bank of Philadelphia, which includesthe state of Delaware, a portion of New Jersey and much of Pennsylvania, participated in the survey.

The report focuses on small employer firms, businesses that have between one and 499 full- or part-time payroll employees.

The report indicated that while revenue and employment growth both improved year over year, profitability remained the same.

The outlook for 2019 is less upbeat. While credit demand increased marginally in 2018, the number of firms receiving credit remained essentially flat. Firms with high credit risk and startups continued to have financing shortfalls.

Online lenders in particular saw applications increase by approximately one-third, even though applicants were more dissatisfied with the interest rates offered.

Key findings for the Philadelphia Fed market area include:

  • Over half of firms in the Third District and in the nation employ fewer than five workers: 54 percent of Third District firms employ 1–4 employees, and 55 percent of U.S. firms employ 1–4 employees.
  • Compared with national averages, a higher percentage of Third District firms are owned by men (70 percent versus 65 percent) or are located in urban areas (91 percent versus 83 percent).
  • A larger share of Third District firms (36 percent) reported credit availability as a financial challenge in the previous 12 months than did U.S. firms (31 percent).
  • Loans or lines of credit were the largest share (62 percent) of external financing regularly used by Third District firms, versus 55 percent of U.S. firms.
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