By Saumya Vaishampayan
Main Street versus Wall Street is a well-discussed topic, especially as politicians begin to campaign in earnest across the country. But what’s going on off of Main Street?
A poll released today by the Federal Reserve Bank of New York shed light on some of the smallest businesses, which generally employ less than 10 workers.
Firms polled predominantly wanted loans of $100,000 or less. These loans are known as microloans and were sought by 58% of firms in the poll that applied for credit. More than three-fourths of applicants, regardless of the size of the loan, said they would use the credit for working capital. This includes paying employees or short-term improvements, according to poll author Claire Kramer.
Microloans make up the bottom tenth of small business loans, which are capped at $1 million. But they proved difficult to obtain because small businesses are typically in a weaker position to borrow, with firms citing issues such as insufficient collateral or low credit scores. “There is a tension between demand and supply in the microloan market space,” Kramer said in an interview.
Almost 60% of responding firms did not apply for credit in the last year, and half of these firms cited a lack of confidence in securing credit. Such firms, also known as discouraged, tended to be younger and aren’t often captured by industry associations, according to Kramer. “The age factor is something that we think is worthy of monitoring going forward,” she said.
The 19-question poll showed 57% of the so-called discouraged firms used earnings from the business and personal savings for financing.
A positive trend is the percent of firms – 43 – that intend to apply for credit in the third and fourth quarter. This is slightly higher than the 41% that applied for credit from May 2011 to May 2012, even with the economic uncertainty caused by the fiscal cliff and presidential election in the upcoming quarters.
The New York Fed’s third poll of small businesses was conducted in N.Y., N.J. and Conn. during April and May. It was not a random sample. Approximately half of the firms responding had been in business for 10 years or less and posted 2011 revenues of less than $250,000 and 60% had less than 5 workers. While the results cannot be used to draw conclusions about small businesses as a whole, Kramer said it is a way to measure the pulse of the small business community in the greater New York region.
Culled from: WSJ Small Business section, http://blogs.wsj.com/deals/2012/08/14/small-businesses-have-trouble-getting-micro-loans/, 08/15/2012