Federal Study Shows Credit Gap in New York

An online survey recently conducted by the New York Federal Reserve Bank concluded there is unabated demand for loans to meet the credit needs of small businesses. Out of all small businesses queried in New York only half of the number of small businesses that applied for loans actually received them. Even then, three quarters of small businesses that did receive loans stated that their full borrowing needs had not been met.

The online survey consistently showed through gathered data from small businesses that borrowing money was declining among small businesses. The volume of loans had dropped by almost 6 percent or about 45 billion dollars since 2008. The Federal Reserve survey data suggested that this obvious contraction was not being driven by small business borrowers but likely deteriorating conditions in the small business industry in New York. Almost two thirds of businesses surveyed in New York reported sales declines since 2008. Further, small businesses that succeeded in obtaining credit showed sales gains during the recession or were able to use profits to fund the business.

The data gathered from the online survey went on to suggest that while the health of a business was a factor in loan approval it was not a factor when small businesses considered applying for a loan. Both healthy and stagnant businesses with declining sales applied for loans at about the same rate. The data clearly cast doubt on theories that it was the weaker small businesses that were driving the demand for loans or credit.

Statistics garnered from the survey showed a 63 percent approval for loans to purchase new vehicles and equipment. The data also shown an approval rate of 46 percent for personal credit cards and yet only 20 percent of all loan applications were approved for traditional business loans. New business credit lines however did show an approval rating of 27 percent. The survey further suggested that banks instituting the new “second look” program along with technical assistance is helping small businesses to obtain needed loans.

The New York Federal Reserve’s findings from the survey have generated some controversy in that the survey contradicts previous surveys conducted. For instance, the National Federation of Independent Business survey concluded that borrowing and lending was down simply because businesses were not interested in borrowing money at the present time according to their member’s survey.

Aerofund has recently expanded their services to focus primarily on accounts receivable lines of credit as discussed in a previous blog “Accounts Receivable Factoring-The Small Business Solution“.  We also offer other lending  solutions such as “prime plus” programs patterned after bank lending, lower interest rates with Account Receivable management services, and 24/7 “online” reporting.  Aerofund’s services may be a good alternative to a traditional loans discussed above.   For small businesses that are constantly waiting on past due invoice payments, Aerofund Financial, Inc could be the perfect solution.