Past Insights

A dangerous trend is hindering the financial growth of small businesses and our economic recovery on a national scale: young firms feel that banks have increasingly denied loans or credit to them, with 2009 standing out as a banner year for the sentiment that tougher lending restrictions are curbing growth. 

Research released by Kauffman Firm Study (KFS), sponsored by the Ewing Marion Kauffman Foundation, tracked 5,000 new businesses founded in 2004 and found that:

• 89 percent of firms that were denied loans in 2009 felt that banks’ heightened requirements played a role in their denials;
• 21 percent of surveyed firms had chosen not to apply for loans for fear of being declined, and
• 5 percent refrained from seeking external equity financing for this reason.

The research also found that, “About half of the young firms surveyed made new investments in their businesses through debt financing in 2009, and less than one-quarter made new equity investments – an 8 percent decline in equity investing from 2008.”

Clearly, our bailout of the financial industry is not “trickling down” to the businesses that most need investment. Start-ups, the best generators of new jobs (with nearly all net job creation in America taking place at firms that are less than five years old), simply can’t access adequate capital to invest in the growth required to significantly reduce unemployment rates.

Read more reports using KFS data.