Financial Services Used by Small Businesses: Evidence from the 1998 Survey of Small Business Finances.Small businesses--firms having fewer than 500 employees--are an integral part of the U.S. economy. They account for about half of private-sector output, employ more than half of private-sector workers, and provide about three-fourths of net new jobs each year.(1) Newly available data from the Survey of Small Business Finances provide a detailed look at these firms--their characteristics and their use of credit and other financial services. The survey is the most comprehensive source of such information; no other source provides the breadth and detail of information for a nationally representative sample of small businesses. Since the first small business survey in 1987, the financial landscape in which these firms operate has changed markedly. Restrictions on interstate branching and banking have been relaxed, and certain financial institutions are now permitted to offer a wider range of financial services. Technological innovations (such as the use of small-business credit-scoring models) and structural changes in the financial services industry (such as consolidation of banking and thrift institutions) have also contributed to the alteration. By comparing the newest survey data with results from earlier surveys in 1987 and 1993, policymakers and researchers will be able to assess the effects these marketwide changes may have had on the use of financial services by small businesses and on the competitive financial environment in which they operate.(2) The latest survey gathered data for fiscal year 1998 from 3,561 firms selected to be representative of small businesses operating in the United States in December 1998.(3) The data show that in 1998, as in 1987 and 1993, most small businesses were very small (nearly two-thirds had fewer than five employees) and most (nearly four-fifths) were located in urban areas.(4) Ownership characteristics had changed somewhat since 1993--nearly 15 percent were owned by minorities (up from nearly 12 percent in 1993), and more than 24 percent were owned by women (up from nearly 21 percent in 1993). Commercial banks continued to be the supplier most commonly used by small businesses for financial services other than leasing, brokerage services, and trust and pension services. Finance companies and leasing companies were also important suppliers of credit and financial management services, especially for the largest firms. The likelihood of using a service increased with firm size, as did the likelihood of using each type of supplier except thrifts and family and individuals. In the 1998 survey, 55 percent of small businesses reported outstanding loans, capital leases, or lines of credit at year-end, compared with 59 percent in the 1993 survey. Credit use increased strongly with firm size: About 33 percent of the smallest firms had outstanding loans, capital leases, or lines of credit, compared with about 92 percent of the largest firms. Although the percentage of small businesses with outstanding loans, capital leases, or lines of credit was about the same in 1998 as in 1993, the types of credit used changed somewhat over the intervening period: The percentage that had outstanding vehicle loans, equipment loans, trade credit, and other loans declined somewhat, whereas the percentage that had outstanding mortgages or used personal and business credit cards for business purposes increased. The 1998 data are still being edited and are therefore subject to revision. However, the descriptive findings reported here are likely to be robust.(5) Once the data are final, the database will allow for rigorous analysis that takes into account characteristics of the businesses, their owners, and existing markets. Researchers will be able to study many aspects of small business finance, including, for example, how the proximity of financial institutions affects the mix of financial products the firm uses, which firm and owner characteristics affect the ability of small businesses to obtain credit, and how lending patterns vary with these characteristics.(6) ECONOMIC AND FINANCIAL SERVICES ENVIRONMENT The financial services industry and the economic climate were considerably different in 1998 than in 1993. Over the period between the surveys, the intense consolidation activity that had begun early in the decade reduced the number of financial institutions operating in the United States more than 20 percent.(7) Indeed, three of the largest bank consolidations to that point--BankAmerica and NationsBank, Wells Fargo and Norwest, and Banc One and First Chicago NBD--occurred in 1998. Cross-industry merger activity was also strong over the period as the traditional boundaries between three important types of firms that make up the financial services industry--depository institutions, securities firms, and insurance companies--continued to erode. A notable example was the 1998 merger between Citicorp, a bank holding company, and Travelers, an insurance and securities firm.(8) In 1998, the economy was in the seventh year of a sustained economic expansion. Unemployment was just under 5 percent, the consumer price index (CPI) rose 1.6 percent, the gross domestic product (GDP) grew 4.4 percent, and productivity in the business sector increased 2.7 percent. In 1993, the economy was in the early stages of an expansion following two years of recession; unemployment was nearly 7 percent, the CPI and GDP each increased 2.7 percent, and business-sector productivity grew just one-half of 1 percent.(9) According to the 1998 survey, labor issues (the quality, cost, and availability of labor) were the greatest concern for small businesses, particularly among the largest firms (table 1). Another commonly mentioned concern was competition from larger, international, or Internet firms. Other important problems--although mentioned less often--were financing and interest rates, government regulations, taxes, and poor sales.
1. Most important problem facing small business in 1998,
distributed by size of business
Percent
Number of employees(1)
Problem
9 or fewer 10-49 50-499
Competition (from larger,
international, or Internet
companies) 11.0 12.5 12.3
Quality of labor 10.1 24.3 25.2
Cost or availability of labor 3.2 6.5 12.6
Poor sales 7.6 6.4 7.3
Financing and interest rates 6.9 6.4 3.7
Government regulations and
red tape 6.9 5.9 8.0
Taxes 7.2 5.8 3.3
Other 47.1 32.2 27.6
NOTE. In this and subsequent tables, unless otherwise noted,
the data are weighted to adjust for differences in sampling and
response rates; the weighted data reflect population rather than
sample measures. See the appendix for more information.
Also in this and subsequent tables, distributions may not sum to
100 percent because of rounding or because, in a few cases, values
for some variables are missing.
(1.) Sum of number of owners working in the business and number of
employees (full- and part-time) working in the business.
The primary concerns of small businesses were markedly different in 1993.(10) In that survey, health care and health insurance were cited most often, followed by general U.S. business conditions--two issues that received much less attention in 1998. The other problems mentioned most frequently in 1993 were financing and interest rates; profits, cash flow, expansion, and sales; and taxes. CHARACTERISTICS OF SMALL BUSINESSES Along with information on the availability and use of credit and other financial services by small businesses, the 1998 Survey of Small Business Finances collected information on firm characteristics, including number of employees; number of owners; organizational form; location; use of computers; standard industrial classification Standard Industrial Classification (SIC) A code system that designates a unique business activity classified by industry.; credit
history; sex, race, and ethnicity of the owner(s) with the majority
share of the firm; and income and balance sheet data.(11) Also collected
was information on each firm's primary owner (defined as the owner
with the largest ownership share if the firm had more than one owner),
including age, education, experience in business, ownership share,
credit history, personal net worth, home ownership, and home equity.Business size is measured in three ways: number of employees, fiscal year sales, and year-end assets. In terms of employment, most small businesses in 1998 were very small: About 64 percent had fewer than five employees, and just over 83 percent had fewer than ten employees (table 2).(12) In terms of sales and assets, the businesses were similarly small: About 40 percent had fiscal year sales of less than $100,000, and just over 61 percent had year-end assets of less than $100,000. This general pattern is similar to findings from the 1993 survey.
2. Number and proportion of population of small businesses
in survey sample, distributed by selected category of firm,
1998
MEMO:
Number Percentage 1993
in of percentage
Category sample(1) population of
population(2)
All firms 3,561 100.00 100.00
Number of employees(3)
0-1 607 21.86 18.18
2-4 1,173 41.78 38.75
5-9 584 19.78 22.89
10-19 281 8.39 10.74
20-49 366 5.47 6.16
50-99 284 1.55 2.14
100-499 261 1.17 1.14
Fiscal year sales
(thousands of dollars)
Less than 25 478 16.34 10.94
25-49 271 9.48 8.50
50-99 419 14.22 12.52
100-249 598 21.72 24.68
250-499 399 13.29 15.72
500-999 329 10.27 11.85
1,000-2,499 361 7.83 8.36
2,500-4,999 232 3.28 3.56
5,000-9,999 175 1.56 1.96
10,000 or more 292 1.79 1.91
End-of-year assets
(thousands of dollars)
Less than 25 1,007 34.72 29.24
25-49 360 12.57 13.96
50-99 413 13.94 14.30
100-249 498 15.86 17.63
250-499 302 8.74 10.45
500-999 253 5.99 6.35
1,000-2,499 279 4.22 4.61
2,500-4,999 159 1.54 1.80
5,000 or more 257 1.51 1.66
Organizational form
Proprietorship 1,429 49.35 43.22
Partnership 226 6.95 8.01
S corporation 1,019 23.87 20.33
C corporation 887 19.83 28.44
Standard industrial
classification
Construction and
mining (10-19) 376 11.87 14.18
Primary manufacturing (20-29) 172 3.66 3.90
Other manufacturing (30-39) 217 4.68 4.16
Transportation (40-49) 144 3.72 2.77
Wholesale trade (50-51) 247 7.15 8.46
Retail trade (52-59) 704 18.95 21.70
Insurance agents and
real estate (60-69) 213 6.48 7.09
Business services (70-79) 832 24.83 21.15
Professional services (80-89) 650 18.46 16.59
Years under current ownership
0-4 730 22.37 14.74
5-9 745 22.79 28.46
10-14 683 19.14 19.16
15-19 486 13.05 14.40
20-24 331 8.72 8.68
25 or more 579 13.75 14.55
MEMO:
Number Percentage 1993
in of percentage
Category sample(1) population of
population(2)
Census region of main office
Northeast 595 18.90 22.31
New England 155 5.21 6.94
Middle Atlantic 440 13.69 15.37
Midwest 770 21.80 24.13
East North Central 485 14.56 15.96
West North Central 285 7.24 8.17
South 1,225 32.71 29.48
South Atlantic 641 16.88 14.84
East South Central 202 5.47 4.55
West South Central 382 10.35 10.09
West 971 26.59 24.08
Mountain 238 6.63 5.81
Pacific 733 19.96 18.27
Urbanization at main office
Urban 2,782 79.91 78.88
Rural 779 20.09 21.12
Number of offices
One 2,839 87.75 84.35
Two 379 8.55 10.73
Three or more 341 3.63 4.92
Sales area
Primarily within U.S. 3,355 95.43 ...
International or global 204 4.51 ...
Owners' participation
Owner management 3,188 92.33 86.00
Hired management 369 7.52 14.00
Race, ethnicity, and sex
of majority owners
Nonwhite or Hispanic 756 14.60 11.62
Non-Hispanic white 2,790 84.88 88.38
White 3,033 90.12 92.52
Black 273 4.12 2.91
Asian or Pacific Islander 214 4.38 3.44
American Indian or
Alaska Native 24 0.81 1.13
Hispanic 260 5.59 4.27
Non-Hispanic 3,292 94.10 95.73
Female 796 24.32 20.61
Male 2,609 71.88 73.92
Ownership equally divided
by sex 147 3.67 5.47
(1.) Numbers are unweighted. For some categories, numbers in sample
do not sum to the sample total because some firms responded "Do not
know" or declined to respond.
(2.) The percentages reported here are final data and may differ
slightly from the preliminary data for 1993 reported in Cole and
Wolken, "Financial Services Used by Small Businesses," 1995.
(3.) Number of owners working in the business plus number of
full- and part-time employees. For the 1993 and 1987 surveys, the
number of employees was calculated as the sum of owners working in
the business plus full-time employees plus one-half of part-time
employees; in the 1998 survey, no differentiation was made between
full- and part-time employees. To make the data for 1998 and 1993
comparable, the 1993 numbers have been recalculated as the sum of
owners working in the business, full-time employees, and part-time
employees; therefore, the numbers presented here differ from those
reported in Cole and Wolken, "Financial Services Used by Small
Businesses," 1995.
... Question not asked in 1993.
A business may organize as a corporation (S-type or C-type), a partnership, or a sole proprietorship.(13) In 1998, the most common organizational form for small businesses was the sole proprietorship, accounting for nearly 50 percent of the firms. About 24 percent were organized as S corporations, about 20 percent as C corporations, and only 7 percent as partnerships. The primary activity of 43 percent of the businesses (as classified according to the standard industrial classification (SIC) system used by the U.S. government) was business or professional services. An additional 19 percent were in retail trade. Just over 22 percent of the firms had been in business under at least one of the current owners for less than five years (firm age less than five years), and another 23 percent had been in business five to nine years. More than 22 percent had been in business twenty years or more. Average firm age (not shown in the table) was 13.3 years, slightly less than the average firm age in 1993 of 14.5 years. The firms were dispersed across the country, with nearly 19 percent located in the Northeast, about 27 percent in the West, almost 22 percent in the Midwest, and nearly 33 percent in the South. The vast majority (nearly 80 percent) had their main offices in urban areas, and the primary sales area for nearly all firms (more than 95 percent) was the United States. Race, Ethnicity, and Sex of Majority Owners A firm was classified as being owned by individuals of a specific race, ethnic group, or sex if more than 50 percent of the firm was owned by such individuals. About 15 percent of small businesses in 1998 were minority-owned (that is, owned by nonwhite or Hispanic individuals), compared with about 12 percent in 1993. Between 1993 and 1998, the proportion of black-owned firms increased from about 3 percent to about 4 percent. Over the same period, the proportion of Hispanic-owned firms increased from 4 percent to 6 percent and the proportion of Asian-owned firms, from 3 percent to 4 percent. Ownership by American Indians or Alaska Natives remained at about 1 percent.(14) The proportion of finns that were more than 50 percent owned by men declined somewhat, from about 74 percent in 1993 to about 72 percent in 1998, and the proportion that were more than 50 percent owned by women rose from about 21 percent to about 24 percent. The proportion equally owned by men and women fell nearly 2 percentage points, to 4 percent. The survey data suggest that female- and minority-owned finns share some characteristics that distinguish them from male- and white-owned firms (table A. 1). By all three measures of size, female- and minority-owned firms appear to be smaller than male- and white-owned finns. They also appear to be younger, more likely to be sole proprietorships, and less likely to be corporations. These differences are similar to the findings in 1993. The differences in organizational type may simply reflect that minority-owned and female-owned finns tend to be younger and smaller than non-minority-owned and male-owned firms--and younger and smaller finns are more likely to organize as sole proprietorships or partnerships rather than as corporations. Computer Use within the Firm More than three-fourths of the finns used computers in their businesses in 1998 (table 3) (this question was not asked in the earlier surveys). Use varied somewhat by size, with larger finns being more likely than smaller finns to use computers. For example, 89 percent of finns with more than four employees used computers for business purposes, compared with 71 percent of finns with four or fewer employees. Similarly, 86 percent of finns with sales of $100,000 or more used computers, compared with 63 percent with sales of less than $100,000. Finns used computers for a variety of purposes: 59 percent used them to access the Internet; about 15 percent for banking; and about 74 percent for inventory management or bookkeeping.
3. Percentage of small businesses that used computers,
by selected category of firm, 1998
Category Used Used computers for specific tasks(2)
computers
Internet/ Banking Administration
WWW access
All firms 76.3 59.0 15.2 73.9
Number of
employees(1)
0-4 70.8 53.8 13.6 68.0
5 or more 88.5 70.6 18.8 86.8
Fiscal year
sales (thousands
of dollars)
Less than 100 62.7 48.1 11.6 60.3
100 or more 85.6 66.6 17.7 83.2
End-of-year
assets (thousands
of dollars)
Less than 100 70.6 54.0 12.7 68.0
100 or more 85.6 67.2 19.2 83.7
Years under
current ownership
0-4 78.4 62.7 16.7 75.9
5-9 78.6 64.1 16.6 75.7
10 or more 74.4 55.6 14.1 72.2
(1.) See table 1, note 1.
(2.) Firms were given a list of tasks and asked to check all
that applied.
TYPES OF FINANCIAL SERVICES USED BY SMALL BUSINESSES Businesses were asked which of thirteen financial services they used at up to twenty different institutions.(15) The services can be grouped into several categories: liquid asset services (business checking or savings accounts); credit lines, loans, and capital leases (lines of credit, mortgages, motor vehicle loans, equipment loans, capital leases, and "other" loans); and financial management services (transaction, cash-management, credit-related, brokerage, and trust and pension services). Owner loans, credit cards, and trade credit are discussed separately and are not included in the tabulations for "any financial service," as no information was collected about the providers of these financial services. Any Financial Service Nearly all small businesses (about 96 percent) used at least one financial service in 1998, essentially the same finding (97 percent) as in 1993 (table 4). In general, use increased with firm size, and almost all firms with five or more employees, or with sales or assets of at least $250,000, used some financial service during the year. About 9 percent of firms with fewer than two employees used no financial service in 1998.
4. Percentage of small businesses using selected financial services,
by selected category of firm, 1998
A. Any service; liquid asset accounts; and credit lines, loans, and
capital leases
Liquid asset accounts(2)
Any
Category service(1) Any Checking Savings
All firms, 1998 96.18 94.43 94.04 22.20
All firms, 1993 97.03 96.21 95.81 24.35
Number of
employees(4)
0-1 91.02 86.41 85.33 16.37
2-4 95.86 94.34 94.10 19.45
5-9 99.37 99.05 98.79 23.38
10-19 100.00 99.86 99.86 35.86
20-49 100.00 100.00 100.00 36.01
50-99 100.00 97.77 97.77 30.07
100-499 100.00 100.00 100.00 36.87
Fiscal year sales
(thousands of
dollars)
Less than 25 82.99 76.62 74.96 11.84
25-49 94.77 91.64 91.12 17.12
50-99 97.97 97.07 96.96 18.10
100-249 99.34 98.29 98.29 19.06
250-499 99.82 99.75 99.75 23.36
500-999 99.57 99.57 99.07 30.26
1,000-2,499 100.00 100.00 100.00 37.58
2,500-4,999 100.00 99.03 99.03 45.48
5,000-9,999 100.00 99.09 99.09 37.56
10,000 or more 100.00 100.00 100.00 36.71
End-of-year assets
(thousands of
dollars)
Less than 25 89.87 86.55 85.77 12.24
25-49 98.65 96.81 96.69 19.57
50-99 99.68 99.31 98.96 20.53
100-249 99.46 98.40 98.40 28.81
250-499 100.00 100.00 99.41 33.64
500-999 100.00 99.40 99.40 36.44
1,000-2,499 100.00 98.79 98.79 36.02
2,500-4,999 100.00 100.00 100.00 37.45
5,000 or more 100.00 100.00 100.00 45.29
Organizational form
Proprietorship 93.16 89.94 89.16 18.23
Partnership 95.37 95.24 95.24 18.75
S corporation 99.85 99.56 99.56 24.68
C corporation 99.58 99.15 99.15 30.33
Standard industrial
classification
Construction and
mining (10-19) 97.11 96.13 96.04 20.63
Primary manufacturing
(20-29) 95.49 92.87 92.87 19.79
Other manufacturing
(30-39) 94.15 91.98 91.98 23.79
Transportation
(40-49) 98.60 98.23 98.23 23.56
Wholesale trade
(50-51) 99.12 96.71 96.71 21.36
Retail trade (52-59) 96.84 95.85 95.75 18.45
Insurance agents and
real estate
(60-69) 96.61 96.13 96.13 25.40
Business services
(70-79) 94.48 92.41 91.18 22.82
Professional services
(80-89) 96.04 93.23 92.95 25.47
Years under current
ownership
0-4 94.50 93.25 92.85 15.38
5-9 96.05 93.61 93.34 20.87
10-14 96.59 94.75 93.93 25.74
15-19 98.45 96.76 96.61 26.31
20-24 98.03 97.23 97.23 23.07
25 or more 95.19 93.22 92.79 26.06
Census region of
main office
Northeast 95.81 92.85 92.22 20.36
New England 94.67 92.95 92.11 23.59
Middle Atlantic 96.24 92.82 92.26 19.13
Midwest 96.48 95.04 94.64 23.47
East North Central 96.54 95.58 94.98 22.88
West North Central 96.36 93.96 93.96 24.66
South 96.05 94.24 94.02 16.10
South Atlantic 96.43 94.12 94.03 14.26
East South Central 96.51 95.54 95.54 16.69
West South Central 95.18 93.74 93.19 18.78
West 96.37 95.29 94.88 29.98
Mountain 97.25 96.82 96.82 22.42
Pacific 96.08 94.79 94.24 32.50
Urbanization at main
office
Urban 96.45 94.76 94.34 22.30
Rural 95.12 93.13 92.86 21.82
Number of offices
One 95.68 93.75 93.37 21.10
Two 100.00 99.37 98.77 30.89
Three or more 99.13 99.13 99.13 28.76
Sales area
Primarily within
U.S. 96.10 94.42 94.01 22.19
International or
global 97.81 94.60 94.60 22.88
Owners' participation
Owner management 95.93 94.10 93.68 22.16
Hired management 99.16 98.40 98.40 22.74
Race, ethnicity,
and sex of
majority owners
Nonwhite or Hispanic 93.86 92.02 91.61 16.83
Non-Hispanic white 96.56 94.86 94.48 23.14
White 96.37 94.67 94.31 22.95
Black 91.33 88.39 87.24 13.22
Asian or Pacific
Islander 97.50 96.20 95.92 17.90
American Indian or
Alaska Native 92.67 92.67 92.67 10.71(*)
Hispanic 92.95 91.33 91.33 19.58
Non-Hispanic 96.36 94.64 94.23 22.37
Female 91.85 90.32 89.92 23.57
Male 97.53 95.63 95.23 21.68
Ownership equally
divided by sex 98.34 98.02 98.02 23.15
Credit lines, loans, and capital leases
Category Any Credit Mortgage Vehicle
line
All firms, 1998 55.09 27.71 13.29 20.55
All firms, 1993 59.13 25.71 7.83 25.28
Number of
employees(4)
0-1 32.79 13.42 6.55 12.80
2-4 49.80 20.83 12.45 16.89
5-9 68.53 34.08 16.21 26.92
10-19 78.01 50.59 19.89 32.63
20-49 83.84 59.07 21.10 31.98
50-99 86.87 62.67 26.25 34.47
100-499 92.04 74.81 18.84 29.85
Fiscal year sales
(thousands of
dollars)
Less than 25 26.76 9.11 7.93 5.80
25-49 33.47 11.25 7.65 14.92
50-99 45.94 15.20 9.69 14.02
100-249 56.25 22.48 14.70 19.98
250-499 67.09 36.82 13.04 25.89
500-999 74.02 41.74 18.64 30.49
1,000-2,499 78.34 51.48 21.15 37.15
2,500-4,999 94.59 68.80 22.65 37.26
5,000-9,999 88.68 75.74 16.52 37.91
10,000 or more 88.95 81.36 18.87 30.22
End-of-year assets
(thousands of
dollars)
Less than 25 32.64 11.35 6.28 10.47
25-49 49.60 22.83 6.79 19.63
50-99 60.06 25.25 10.05 21.80
100-249 67.85 34.61 17.46 26.42
250-499 71.65 40.97 22.65 28.90
500-999 88.54 56.01 33.86 33.70
1,000-2,499 81.15 55.84 25.03 33.48
2,500-4,999 93.09 81.32 26.18 31.71
5,000 or more 95.66 76.01 31.16 38.77
Organizational form
Proprietorship 45.66 18.51 12.44 16.11
Partnership 61.18 27.69 19.07 19.43
S corporation 65.00 37.89 13.91 25.32
C corporation 64.50 38.35 12.65 26.23
Standard industrial
classification
Construction and
mining (10-19) 66.76 31.98 12.07 38.15
Primary manufacturing
(20-29) 56.49 32.10 8.66 16.31
Other manufacturing
(30-39) 60.15 35.87 6.85 19.47
Transportation
(40-49) 62.13 29.70 10.85 28.82
Wholesale trade
(50-51) 64.28 47.26 12.15 27.85
Retail trade (52-59) 54.11 25.19 17.45 17.87
Insurance agents and
real estate
(60-69) 59.77 26.90 24.81 16.63
Business services
(70-79) 49.53 22.41 12.12 18.16
Professional services
(80-89) 47.99 23.86 10.97 13.39
Years under current
ownership
0-4 51.14 19.63 11.95 18.51
5-9 55.79 26.87 10.91 18.08
10-14 56.18 30.88 14.01 23.87
15-19 58.90 33.24 16.06 22.00
20-24 57.86 29.51 17.43 23.73
25 or more 53.09 31.37 13.02 19.46
Census region of
main office
Northeast 52.57 26.10 12.90 18.21
New England 54.33 22.14 12.33 20.97
Middle Atlantic 51.90 27.60 13.12 17.16
Midwest 59.19 29.19 15.48 21.74
East North Central 57.45 28.15 14.53 22.22
West North Central 62.70 31.29 17.38 20.77
South 54.56 28.82 12.50 21.66
South Atlantic 53.90 29.49 11.71 21.69
East South Central 61.63 34.63 18.09 19.35
West South Central 51.89 24.64 10.84 22.83
West 54.16 26.27 12.75 19.86
Mountain 55.43 22.44 17.90 24.84
Pacific 53.74 27.54 11.04 18.21
Urbanization at main
office
Urban 54.00 27.81 11.16 20.41
Rural 59.42 27.28 21.76 21.09
Number of offices
One 52.74 25.43 12.65 19.74
Two 67.60 41.08 16.42 24.23
Three or more 81.61 51.22 21.75 30.36
Sales area
Primarily within
U.S. 55.13 27.29 13.60 20.66
International or
global 53.46 36.65 6.92 17.09
Owners' participation
Owner management 53.75 26.87 12.72 19.90
Hired management 70.60 37.78 20.02 27.81
Race, ethnicity,
and sex of
majority owners
Nonwhite or Hispanic 49.45 20.43 12.67 16.83
Non-Hispanic white 56.11 28.96 13.36 21.25
White 55.92 28.49 13.34 20.99
Black 48.24 18.64 11.61 14.56
Asian or Pacific
Islander 46.41 22.54 11.84 16.35
American Indian or
Alaska Native 51.04(*) 16.83(*) 18.89(*) 32.78(*)
Hispanic 52.74 20.98 13.53 16.30
Non-Hispanic 55.18 28.02 13.26 20.82
Female 46.13 18.42 12.76 13.56
Male 57.39 30.33 12.94 22.61
Ownership equally
divided by sex 68.42 38.40 22.63 25.90
Credit lines, loans,
and capital leases
Category Equipment Capital Other(3)
lease
All firms, 1998 10.18 10.59 9.92
All firms, 1993 14.84 10.25 12.74
Number of
employees(4)
0-1 3.77 3.29 5.82
2-4 8.25 7.42 9.35
5-9 14.52 14.26 9.19
10-19 13.97 23.19 14.67
20-49 22.96 21.71 20.14
50-99 20.25 31.75 20.86
100-499 24.69 27.71 22.81
Fiscal year sales
(thousands of
dollars)
Less than 25 2.37(*) 2.82(*) 6.41
25-49 3.70(*) 2.36(*) 3.36(*)
50-99 5.76 7.73 8.96
100-249 11.50 11.31 10.29
250-499 12.00 11.29 11.31
500-999 16.45 19.81 10.44
1,000-2,499 16.30 17.81 17.79
2,500-4,999 23.68 18.60 12.40
5,000-9,999 20.26 24.77 22.35
10,000 or more 25.40 23.67 17.62
End-of-year assets
(thousands of
dollars)
Less than 25 4.77 5.23 5.00
25-49 6.27 8.21 6.43
50-99 9.70 10.30 12.26
100-249 15.55 12.67 13.50
250-499 12.41 13.97 11.57
500-999 18.32 21.23 19.72
1,000-2,499 20.69 18.87 13.65
2,500-4,999 20.78 34.42 17.00
5,000 or more 30.75 22.26 17.22
Organizational form
Proprietorship 7.13 6.52 8.20
Partnership 13.10 12.92 9.54
S corporation 12.41 14.75 11.53
C corporation 14.05 14.90 12.38
Standard industrial
classification
Construction and
mining (10-19) 11.93 8.27 10.52
Primary manufacturing
(20-29) 19.82 20.05 17.36
Other manufacturing
(30-39) 15.30 14.08 17.10
Transportation
(40-49) 14.16 14.92 12.61
Wholesale trade
(50-51) 9.81 10.47 10.47
Retail trade (52-59) 7.66 6.39 10.26
Insurance agents and
real estate
(60-69) 11.53 9.97 8.94
Business services
(70-79) 8.85 10.60 7.73
Professional services
(80-89) 9.16 13.13 8.51
Years under current
ownership
0-4 10.62 8.90 11.18
5-9 10.48 11.95 11.14
10-14 9.32 12.10 7.02
15-19 12.12 11.32 12.50
20-24 8.95 10.93 11.33
25 or more 9.23 7.85 6.61
Census region of
main office
Northeast 8.39 10.99 10.42
New England 7.70 11.88 12.58
Middle Atlantic 8.65 10.66 9.60
Midwest 11.52 9.45 10.70
East North Central 10.99 10.99 10.74
West North Central 12.58 6.37 10.62
South 10.59 10.58 8.65
South Atlantic 10.36 10.81 9.13
East South Central 15.00 16.31 7.75
West South Central 8.61 7.17 8.35
West 9.85 11.25 10.47
Mountain 11.59 14.44 15.80
Pacific 9.27 10.19 8.70
Urbanization at main
office
Urban 9.57 10.97 8.97
Rural 12.61 9.07 13.67
Number of offices
One 9.09 9.78 9.28
Two 19.22 14.79 12.17
Three or more 15.30 19.20 20.26
Sales area
Primarily within
U.S. 10.30 10.45 9.90
International or
global 7.29 12.67 10.04
Owners' participation
Owner management 9.91 10.24 9.79
Hired management 13.71 14.12 11.59
Race, ethnicity,
and sex of
majority owners
Nonwhite or Hispanic 7.52 10.48 9.23
Non-Hispanic white 10.69 10.60 10.02
White 10.71 10.52 9.93
Black 6.49 13.77 11.45
Asian or Pacific
Islander 5.01 8.39 9.12
American Indian or
Alaska Native 4.31(*) 11.89(*) 3.98(*)
Hispanic 10.31 8.92 8.82
Non-Hispanic 10.20 10.66 9.95
Female 6.41 8.07 9.72
Male 11.40 11.43 9.84
Ownership equally
divided by sex 10.37 11.16 12.99
B. Financial management services
Financial management services(5)
Category
Any Trans- Cash Credit-
action manage- related
ment
All firms, 1998 49.81 41.07 5.21 3.09
All firms, 1993 36.54 24.16 5.13 4.62
Number of employees(4)
0-1 34.49 28.07 1.57(*) 1.42(*)
2-4 43.81 35.73 2.75 1.45
5-9 60.54 53.18 4.00 3.66
10-19 68.69 54.29 11.94 7.93
20-49 73.98 58.99 16.61 7.23
50-99 76.83 56.79 26.95 13.21
100-499 84.75 70.21 50.83 15.37
Fiscal year sales
(thousands of dollars)
Less than 25 29.31 25.71 2.42(*) .95(*)
25-49 36.67 31.24 .95(*) .72(*)
50-99 37.64 32.24 .95(*) .91(*)
100-249 49.67 39.90 2.23(*) 1.22(*)
250-499 58.64 46.64 5.04 4.57
500-999 63.58 59.04 5.39 4.98(*)
1,000-2,499 71.11 51.88 12.63 6.36
2,500-4,999 78.64 63.69 18.42 6.19
5,000-9,999 83.30 64.74 29.95 14.21
10,000 or more 89.97 67.33 45.77 23.83
End-of-year assets
(thousands of dollars)
Less than 25 33.96 29.33 1.31(*) .69(*)
25-49 45.40 36.85 .98(*) .46(*)
50-99 52.66 43.07 3.65 2.75(*)
100-249 58.29 49.52 5.96 3.96
250-499 64.83 53.17 6.75 2.83(*)
500-999 64.31 49.92 7.69 6.64
1,000-2,499 74.13 56.43 16.89 11.88
2,500-4,999 85.79 69.11 37.03 15.40
5,000 or more 87.93 62.25 52.27 17.27
Organizational form
Proprietorship 39.78 33.24 1.94 1.48
Partnership 46.44 43.02 3.83 5.78
S corporation 59.93 48.89 9.31 4.47
C corporation 63.79 50.46 8.89 4.48
Standard industrial
classification
Construction and mining 35.71 27.49 6.42 5.39
Primary manufacturing
(20-29) 52.83 44.70 6.90 5.77
Other manufacturing (30-39) 53.83 42.92 8.39 8.43
Transportation (40-49) 50.14 43.90 5.04 3.26(*)
Wholesale trade (50-51) 58.53 46.60 6.01 10.42
Retail trade (52-59) 57.92 55.63 3.65 1.69
Insurance agents and
real estate (60-69) 38.45 26.03 7.93 2.56(*)
Business services (70-79) 47.19 40.75 4.25 1.45
Professional services
(80-89) 53.07 36.64 4.97 .68(*)
Years under current
ownership
0-4 46.59 40.22 4.13 2.71
5-9 48.75 40.71 4.27 2.37
10-14 53.22 44.02 6.06 3.03
15-19 51.42 40.79 5.67 3.99
20-24 52.05 43.90 6.24 2.60
25 or more 49.03 37.20 6.30 4.41
Census region of main
office
Northeast 48.22 36.52 3.92 2.21
New England 53.59 42.04 4.43 2.36(*)
Middle Atlantic 46.18 34.42 3.73 2.16
Midwest 52.95 42.63 6.86 3.77
East North Central 54.38 45.10 7.07 2.63
West North Central 50.07 37.66 6.42 6.04
South 48.22 40.56 5.86 3.59
South Atlantic 50.82 41.61 6.28 3.60
East South Central 48.32 38.78 6.13 5.97(*)
West South Central 43.93 39.79 5.05 2.30
West 50.33 43.64 3.96 2.53
Mountain 50.31 45.03 5.10 3.21(*)
Pacific 50.34 43.18 3.58 2.31
Urbanization at main office
Urban 50.80 41.81 5.41 2.76
Rural 45.89 38.11 4.40 4.39
Number of offices
One 47.34 39.08 4.17 2.45
Two 67.01 53.96 9.66 8.14
Three or more 70.10 59.67 19.83 6.69
Sales area
Primarily within U.S. 49.15 40.30 5.13 2.74
International or global 64.24 57.58 6.84 10.36
Owners' participation
Owner management 48.59 40.17 4.79 3.00
Hired management 64.41 51.98 10.47 4.22
Race, ethnicity, and sex
of majority owners
Nonwhite or Hispanic 46.84 41.04 2.75 3.07
Non-Hispanic white 50.30 41.04 5.66 3.10
White 49.41 40.36 5.54 3.08
Black 42.23 36.70 2.01(*) 1.86(*)
Asian or Pacific Islander 67.92 62.83 2.86(*) 4.03(*)
American Indian or Alaska
Native 37.86(*) 25.97(*) .32(*) 6.11(*)
Hispanic 35.66 29.54 3.40(*) 2.60(*)
Non-Hispanic 50.68 41.75 5.33 3.12
Female 46.98 39.91 3.00 1.64
Male 50.37 41.17 5.67 3.52
Ownership equally divided
by sex 55.88 44.91 10.58 4.04(*)
Financial management MEMO:
services(5) Other
Credit
Category
Brokerage Trust Loan
and from
pension owner(6)
All firms, 1998 4.34 12.62 28.12
All firms, 1993 4.37 10.52 30.91
Number of employees(4)
0-1 2.67 5.60 17.49
2-4 3.21 9.01 26.25
5-9 4.90 12.49 27.47
10-19 8.63 24.78 34.24(*)
20-49 8.94 32.81 33.69
50-99 8.80 45.08 36.02
100-499 7.95 50.51 28.76
Fiscal year sales
(thousands of dollars)
Less than 25 1.11(*) 1.81(*) 21.36
25-49 2.84(*) 5.57 17.77
50-99 1.21(*) 6.13 26.19
100-249 4.41 10.81 29.12
250-499 5.16 15.18 30.08
500-999 4.62 12.82 31.86
1,000-2,499 11.19 27.49 26.82
2,500-4,999 9.69 37.70 25.74
5,000-9,999 11.74 45.43 34.98
10,000 or more 12.23 62.83 29.26
End-of-year assets
(thousands of dollars)
Less than 25 1.33(*) 5.00 20.55
25-49 4.00(*) 9.08 26.00
50-99 4.04 11.98 33.22
100-249 5.05 14.55 31.08
250-499 5.74 14.75 29.37
500-999 9.75 23.13 30.03
1,000-2,499 11.23 34.67 32.35
2,500-4,999 13.69 42.24 31.72
5,000 or more 14.53 59.16 27.30
Organizational form
Proprietorship 2.78 7.63 ...
Partnership 2.90(*) 8.90 13.10
S corporation 5.73 15.68 30.45
C corporation 7.03 22.69 30.57
Standard industrial
classification
Construction and mining 5.40 8.36 27.61
Primary manufacturing
(20-29) 4.20(*) 11.96 45.49
Other manufacturing (30-39) 6.36(*) 19.23 34.53
Transportation (40-49) 3.57(*) 8.42 25.74
Wholesale trade (50-51) 4.13 18.76 29.66
Retail trade (52-59) 2.15 5.63 28.36
Insurance agents and
real estate (60-69) 3.23(*) 11.32 24.13
Business services (70-79) 3.50 9.29 26.91
Professional services
(80-89) 7.19 24.54 24.76
Years under current
ownership
0-4 2.17 5.76 31.66
5-9 2.92 11.92 31.64
10-14 4.62 14.17 23.54
15-19 6.95 18.44 29.47
20-24 4.72 14.40 22.44
25 or more 7.14 16.27 25.40
Census region of main
office
Northeast 5.77 14.89 28.12
New England 7.86 13.57 31.90
Middle Atlantic 4.98 15.39 26.77
Midwest 4.44 16.42 28.38
East North Central 4.40 17.01 29.80
West North Central 4.51 15.25 25.10
South 3.93 10.38 25.73
South Atlantic 4.87 10.81 28.32
East South Central 3.83(*) 11.23 22.54
West South Central 2.44(*) 9.24 22.12
West 3.73 10.66 31.32
Mountain 1.87(*) 8.99 30.55
Pacific 4.35 11.21 31.67
Urbanization at main office
Urban 4.64 13.49 28.58
Rural 3.12 9.20 25.74
Number of offices
One 3.87 11.62 27.61
Two 7.68 19.17 31.20
Three or more 7.78 21.83 28.28
Sales area
Primarily within U.S. 4.33 12.38 28.39
International or global 4.49 17.95 22.70
Owners' participation
Owner management 4.36 11.72 28.02
Hired management 4.09 23.20 28.74
Race, ethnicity, and sex
of majority owners
Nonwhite or Hispanic 2.54 8.65 27.64
Non-Hispanic white 4.62 13.38 28.24
White 4.49 12.97 28.02
Black 1.92(*) 8.75 28.05
Asian or Pacific Islander 2.83 10.33 34.22
American Indian or Alaska
Native 5.78(*) 15.16(*) 10.84
Hispanic 2.15(*) 6.66 22.80
Non-Hispanic 4.48 13.02 28.46
Female 4.60 9.75 30.39
Male 4.38 13.68 27.41
Ownership equally divided
by sex 1.96(*) 10.97 28.69
MEMO: Other credit
Credit card
Category Trade
credit
Personal Business
All firms, 1998 45.18 33.31 60.33
All firms, 1993 40.72 28.83 63.81
Number of employees(4)
0-1 44.91 19.19 42.69
2-4 46.75 28.46 56.86
5-9 44.00 41.93 71.14
10-19 50.38 51.39 77.90
20-49 39.51 55.61 80.67
50-99 30.29 56.52 80.67
100-499 23.00 59.67 83.37
Fiscal year sales
(thousands of dollars)
Less than 25 41.10 11.14 30.34
25-49 45.71(*) 20.75 46.78
50-99 47.83 27.11 54.30
100-249 51.84 31.90 63.01
250-499 47.59 43.06 75.85
500-999 41.50 44.04 77.27
1,000-2,499 45.37 54.45 80.15
2,500-4,999 33.21 62.68 79.86
5,000-9,999 24.79 67.66 72.10
10,000 or more 22.39 62.09 76.58
End-of-year assets
(thousands of dollars)
Less than 25 45.52 21.35 43.22
25-49 49.80 29.22 59.78
50-99 46.71 33.85 67.46
100-249 48.10 36.54 70.57
250-499 41.78 49.33 73.82
500-999 43.95 42.97 75.30
1,000-2,499 35.25 57.48 78.88
2,500-4,999 25.38 65.31 80.00
5,000 or more 26.53 68.11 80.59
Organizational form
Proprietorship 49.04 21.63 50.85
Partnership 36.92 28.45 57.82
S corporation 43.24 46.55 71.74
C corporation 40.79 48.12 71.08
Standard industrial
classification
Construction and mining 39.97 33.35 77.29
Primary manufacturing
(20-29) 48.91 43.18 73.23
Other manufacturing (30-39) 45.89 36.00 78.19
Transportation (40-49) 44.10 45.39 44.15
Wholesale trade (50-51) 45.14 43.56 68.46
Retail trade (52-59) 40.46 29.15 63.64
Insurance agents and
real estate (60-69) 39.68 32.68 34.62
Business services (70-79) 46.01 28.25 59.14
Professional services
(80-89) 53.39 35.40 49.57
Years under current
ownership
0-4 45.64 28.14 54.11
5-9 47.75 37.79 59.74
10-14 46.30 33.09 62.04
15-19 41.86 36.52 63.94
20-24 45.07 33.65 67.56
25 or more 41.52 31.15 60.91
Census region of main
office
Northeast 48.87 33.51 60.41
New England 50.65 40.82 63.33
Middle Atlantic 48.19 30.73 59.30
Midwest 42.20 30.86 64.27
East North Central 41.04 32.57 65.82
West North Central 44.52 27.43 61.16
South 41.15 34.36 58.77
South Atlantic 42.10 35.89 60.13
East South Central 41.95 34.29 65.81
West South Central 39.18 31.90 52.82
West 49.95 33.87 58.97
Mountain 52.05 34.77 61.68
Pacific 49.26 33.57 58.06
Urbanization at main office
Urban 46.00 34.05 59.81
Rural 41.90 30.35 62.39
Number of offices
One 45.20 31.35 58.60
Two 45.58 45.70 72.60
Three or more 44.71 51.53 73.75
Sales area
Primarily within U.S. 44.82 32.53 60.04
International or global 53.32 49.89 67.33
Owners' participation
Owner management 46.03 32.92 59.45
Hired management 35.05 37.96 71.05
Race, ethnicity, and sex
of majority owners
Nonwhite or Hispanic 45.17 28.20 50.98
Non-Hispanic white 45.16 34.21 62.16
White 44.85 33.97 61.19
Black 44.05 28.78 46.20
Asian or Pacific Islander 52.81 26.94 56.83
American Indian or Alaska
Native 45.19(*) 19.97(*) 75.93(*)
Hispanic 41.75 28.95 46.37
Non-Hispanic 45.39 33.57 61.24
Female 46.71 28.21 51.81
Male 44.77 34.64 63.07
Ownership equally divided
by sex 42.21 41.12 61.97
(1.) Excludes owner loans, credit cards, and trade credit.
(2.) Checking accounts: Accounts with unlimited check-writing
privileges, including share draft accounts used for business
purposes and owners' personal checking accounts if used primarily
for business purposes. Savings accounts: Passbook savings accounts,
credit union share accounts, certificates of deposit, other time
deposits, and money market accounts if they were limited in either
the number or the amount of checks that could be written.
(3.) Includes any loans that could not be classified as credit
lines, capital leases, mortgages used for commercial purposes,
motor vehicle loans, or equipment loans (in general, any unsecured
term loan),
(4.) See table 1, note 1.
(5.) Transaction services: The provision of paper money and coins,
the processing of credit card receipts, the collection of night
deposits, and wire transfers. Cash-management services: The
provision of sweep accounts, zero-balance accounts, lockbox
services, and other services designed to automatically invest
liquid funds in liquid, interest-bearing assets. Credit-related
services: The provision of bankers acceptances, letters of credit,
sales finance, and factoring. Trust and pension services: The
provision of 401 (k) plans, pension funds, business trusts, and
securities safekeeping.
(6.) Percentage of partnerships and corporations using owner
loans (excludes proprietorships).
(*) Fewer than fifteen firms in this category reported using this
service, too small a nunber on which to base a reliable statistic.
Proprietorships and partnerships were less likely than corporations to use a financial service. The difference may be due to the tendency of many proprietorships and some partnerships to commingle business and personal finances; for example, the owners may use personal savings and checking accounts for business purposes.(16) Also, young firms (less than five years old), firms with single offices, and black-, Hispanic-, and female-owned firms were less likely than other firms to use a financial service. Checking and Savings Most small businesses (94 percent) had a checking account at the end of 1998, the same percentage as used any liquid asset account (checking or savings).(17) Because a checking account, including a share draft account, is a vehicle for paying suppliers and depositing sales receipts, it is not surprising that the reported use of "any service" (96 percent) nearly matches the reported use of "any liquid asset account." The data on business savings accounts, however, reveal some interesting differences across firms. Having such an account was highly correlated with firm size. For example, about one-fifth of firms with fewer than ten employees had a business savings account at the end of 1998, compared with more than one-third of firms with ten or more employees. White-owned firms were the most likely to have a business savings account, followed by Hispanic- and Asian-owned firms; black-owned firms were the least likely to have a business savings account. Female-owned firms were more likely than male-owned firms to have such an account. Having such an account varied little by industry. Credit Lines, Loans, and Capital Leases Overall, the incidence of credit lines, outstanding loans, and outstanding capital leases declined between year-end 1993 and year-end 1998 (from 59 percent of firms to 55 percent). Declines were recorded for vehicle loans (which fell from 25 percent to 21 percent), equipment loans (15 percent to 10 percent), and "other" loans (13 percent to 10 percent).(18) Capital leases were about as common in 1998 as in 1993, and the incidence of credit lines and mortgages increased. The slight increase in the percentage of firms with lines of credit (28 percent in 1998 compared with 26 percent in 1993) may have been the result of an increase in commercial banks' use of credit-scoring models. Alternatively, the increase may have been due to differences in the economic environment; as noted earlier, in 1993 the economy was in the early stages of an expansion following a period during which a drop in commercial real estate values erased equity against which many firms might have borrowed. The greater reliance on mortgages in 1998 (13 percent compared with 8 percent in 1993) may reflect recovery of the commercial real estate market. As with checking and savings accounts, the incidence of credit lines, loans, and capital leases increased with firm size: More than 90 percent of the largest firms (100-499 employees) had one of these types of credit at the end of 1998, compared with fewer than 50 percent of very small firms (fewer than five employees). Corporations were more likely than other types of firms to have credit lines, loans, and capital leases. Firms in the services industries (business and professional) were generally less likely than firms in other industries to have these types of credit, perhaps because they require less inventory and equipment. The incidence of credit also varied somewhat with firm age. The percentage of firms that had credit lines, loans, or leases was smallest for those that were less than five years old (51 percent), followed by those that were more than twenty-five years old (53 percent). The finding for the youngest firms is consistent with the observation that depository institutions typically require that borrowers have several years of financial history to qualify for credit. The incidence of credit lines, loans, and capital leases also varied somewhat with owner characteristics. At year-end 1998, fewer than 50 percent of female-, black-, and Asian-owned firms had one of these forms of credit, compared with roughly 55 percent of male- and white-owned firms. By specific loan type, white-owned firms were generally more likely than nonwhite-, Hispanic-, or female-owned firms to have lines of credit, mortgages, vehicle loans, and equipment loans. Black-owned firms were the most likely to have capital leases and "other" loans. Some of the differences by owner race, ethnicity, and sex may be attributable to differences in firm characteristics, such as size. Attribution of these univariate differences to owner race, firm size or age, or other variables is a topic for additional research.(19) Financial Management Services Financial management services include transaction services, cash-management services, credit-related services, trust and pension services, and brokerage services.(20) Fifty percent of small businesses used at least one financial management service in 1998, compared with 37 percent in 1993. They were more likely to use transaction and trust services in 1998, compared with 1993, and equally likely to use cash-management and brokerage services. The incidence of credit-related services fell from about 5 percent of firms in 1993 to only 3 percent in 1998, a decline consistent with the overall decline in the incidence of credit lines, loans, and capital leases described earlier. The most widely used financial management service in 1998, reported by about two-fifths of all firms, was transaction services. Trust and pension services were used by only about one in eight firms, and cash-management services by only one in twenty. As was the case for other financial services, the use of financial management services increased with firm size. For the smallest firms (as measured by number of employees), only 34 percent used at least one financial management service, and only a very small percentage used any financial management service other than transaction services. In contrast, about 85 percent of the largest firms used at least one financial management service; the most commonly used was transaction services, followed by cash-management services and trust and pension services. Brokerage services were used mainly by the larger firms, but by only about one in twelve. A smaller proportion of proprietorships used financial management services relative to firms with other organizational forms; they may have less need for these services because they tend to be small and more likely than other types of firms to commingle personal and business accounts. Firms differed in their use of financial management services by the minority status of and, to a somewhat lesser extent, by the sex of the majority owners. Black-, Hispanic-, and female-owned firms were less likely than white-, non-Hispanic-, and male-owned firms to use such services. Asian-owned firms were the most likely to do so (more than two-thirds used at least one financial management service in 1998). The differences were due largely to differences in the use of transaction and trust and pension services, which in turn were probably related to firm size and industrial classification. Loans from Owners, Credit Cards, and Trade Credit In addition to using credit lines, loans, and leases, many small businesses obtain financing by borrowing from the firm's owners (owner loans), borrowing via credit cards, or borrowing from suppliers of goods and services (trade credit). These alternative forms of credit are different from credit lines, loans, and leases in a number of ways. For example, owner loans are not arm' s-length transactions, as are institutional loans, because the lender owns some portion of the borrowing firm. The interest rates charged for credit card credit often exceed the interest rates for other types of loans; moreover, credit cards, unlike typical loans, provide a convenient means of paying bills and tracking expenses. Trade credit is generally used in connection with the purchase of goods and services from a specific supplier, whereas funds from credit lines, loans, and leases are often available for general purposes and are not restricted to purchases from a single supplier. Also, when outstanding trade credit balances are not repaid in a relatively short period, the finance charges generally exceed those on other loans. Loans from Owners Of the small businesses that could have received loans from owners (that is, those that were organized as corporations or partnerships), 28 percent had such loans in 1998, a slightly smaller percentage than in 1993. Because they generally have fewer credit options, smaller firms might seem more likely than larger firms to borrow from their owners. This was not the case in 1998. The incidence of owner loans did not generally vary with firm size. For every size group except firms with fewer than two employees, sales of less than $50,000, or assets of less than $25,000, more than 25 percent of firms had owner loans at year-end 1998. For the smallest firms (by number of employees), fewer than 18 percent had owner loans. The information gathered by the survey regarding size, capitalization, equity injections, and owner loans will enable researchers to examine why the smallest firms had the lowest incidence of this type of loan. Credit Cards Small businesses were somewhat more likely to use credit cards in 1998 compared with 1993. The percentage using personal credit cards for business purposes increased from 41 percent to 45 percent, and the percentage using business credit cards increased from 29 percent to 33 percent. Credit cards are a convenient means of making payments and tracking expenses. Anecdotal evidence suggests that many smaller and newer businesses also use credit cards as a source of credit, even though it is likely to be more costly than other forms of credit. Lenders sometimes ration credit to high-risk firms. Thus, firms just starting out and those having little credit history may be perceived as high risk and may therefore rely on credit cards as a substitute for other types of loans. The descriptive results are not entirely consistent with these a priori expectations. The use of business credit cards in 1998 did increase with finn size, but the use of personal credit cards varied little with size, except that the largest firms (those with more than fifty employees or with sales or assets greater than $2.5 million) were less likely than others to use personal credit cards.21 Likewise, credit card use did not vary systematically with finn age. Further research is needed to determine the extent to which, and the types of firms for which, credit card balances may be a substitute for other types of credit. Proprietorships were the most likely to use personal credit cards and the least likely to use business credit cards. Insurance and real estate firms were the least likely to use personal credit cards and, along with firms in business services and retail trade, the least likely to use business credit cards. Trade Credit Trade credit is extended when a supplier provides goods and services at one point in time and collects the charges at a later point. If the bills are not paid promptly, trade credit becomes a form of financing. Businesses use trade credit for both transaction and financing purposes. Trade credit reduces the transactions costs that businesses would incur if they had to make payment at the time of delivery, for example, by making funds available for other uses. However, most trade credit is extended for a very short period (thirty or sixty days) and is always granted in connection with specific purchases. The interest rates charged on overdue balances generally are quite high; 2 percent a month is not uncommon. Thus, it is reasonable to expect that the firms using trade credit for longer-term financing purposes are firms that would have difficulty obtaining credit from other sources. Trade credit was used by 60 percent of small businesses in 1998, an incidence of use that exceeds that for all other financial services except checking. In 1993, 64 percent of small businesses used the service. Use generally increased with firm size; except for the smallest firms, more than half the firms in each size category used trade credit in 1998. Black-, Hispanic-, and female-owned firms were less likely than others to use the service; the differences in use between these groups of firms and others were similar to the differences in use between smaller and larger firms. The use of trade credit was most common among firms in manufacturing, construction, and wholesale and retail trade--industries for which nonlabor costs, such as the costs of equipment and inventory, are large relative to labor costs. Among industries for which labor's share of costs is high, such as business and professional services, trade credit use was somewhat less common, but it was still used by at least half the firms. The firms least likely to use trade credit were those whose principal activity involved insurance and real estate or transportation. The survey findings seem to suggest that trade credit was used mainly for transactions purposes. However, some firms undoubtedly used it for financing purposes; further research may help to determine the characteristics of these firms. SUPPLIERS OF FINANCIAL SERVICES USED BY SMALL BUSINESSES The suppliers of financial services to small businesses include financial institutions--depository institutions (commercial banks and thrift institutions, including savings associations, savings banks, and credit unions) as well as nondepository institutions (finance, leasing, mortgage, brokerage, and insurance companies)--and nonfinancial sources (such as individuals, family members, other businesses, and government entities). The survey collected information on the sources of checking and saving services; credit lines, loans, and capital leases; and financial management services.(22) In 1998, depository institutions and nonfinancial sources were used by a slightly smaller share of the small business population, and nondepository financial institutions by a slightly larger share, than in 1993 (table 5). Among depository institutions, commercial bank use was about the same, but thrift use--despite the deregulation of thrift lending to businesses--was somewhat lower, possibly reflecting the decline in the number of thrift institutions nationwide. The decline in the use of thrifts was due to a decline in the use of savings institutions; the use of credit unions increased over the period, from 4 percent to 6 percent of firms.
5. Percentage of small businesses using selected suppliers
of financial services, by selected category of firm, 1998
A. Any supplier, any financial institution,
and depository institutions
Financial institution
Category Any
supplier
Any Depository
Any Commercial
bank
All firms, 1998 96.18 95.74 94.98 88.86
All firms, 1993 97.03 96.84 96.48 89.72
Number of employees(1)
0-1 91.02 89.85 88.67 79.40
2-4 95.86 95.50 94.77 88.09
5-9 99.37 99.37 98.50 93.90
10-19 100.00 100.00 99.79 97.33
20-49 100.00 100.00 100.00 98.06
50-99 100.00 97.94 97.42 93.23
100-499 100.00 100.00 100.00 98.20
Fiscal year sales (thousands
of dollars)
Less than 25 82.99 81.52 80.64 68.32
25-49 94.77 94.77 93.67 85.80
50-99 97.97 97.58 96.85 88.47
100-249 99.34 98.83 97.59 92.58
250-499 99.82 99.82 99.47 96.40
500-999 99.57 99.57 99.44 96.16
1,000-2,499 100.00 100.00 99.09 96.89
2,500-4,999 100.00 99.03 98.89 97.43
5,000-9,999 100.00 100.00 100.00 100.00
10,000 or more 100.00 100.00 99.80 97.23
End-of-year assets (thousands
of dollars)
Less than 25 89.87 89.12 88.35 78.96
25-49 98.65 98.65 97.00 91.48
50-99 99.68 98.93 98.29 92.67
100-249 99.46 99.20 98.80 94.71
250-499 100.00 100.00 99.34 96.29
500-999 100.00 100.00 100.00 95.38
1,000-2,499 100.00 99.24 98.48 96.18
2,500-4,999 100.00 100.00 99.93 99.93
5,000 or more 100.00 100.00 99.84 99.84
Organizational form
Proprietorship 93.16 92.33 91.41 82.24
Partnership 95.37 95.37 95.14 89.50
S corporation 99.85 99.72 98.88 96.06
C corporation 99.58 99.58 99.13 96.42
Standard industrial
classification
Construction and mining
(10-19) 97.11 96.41 96.51 88.07
Primary manufacturing (20-29) 95.49 94.14 94.11 89.50
Other manufacturing (30-39) 94.15 94.15 93.47 89.90
Transportation (40-49) 98.60 98.60 98.60 93.85
Wholesale trade (50-51) 99.12 98.88 98.51 95.72
Retail trade (52-59) 96.84 96.34 95.92 92.64
Insurance agents and real
estate (60-69) 96.61 96.02 96.02 93.79
Business services (70-79) 94.48 94.13 92.44 83.16
Professional services (80-89) 96.04 95.33 94.51 87.24
Years under current ownership
0-4 94.50 93.73 93.22 85.83
5-9 96.05 95.97 94.94 89.50
10-14 96.59 96.19 95.22 88.48
15-19 98.45 98.45 97.87 93.01
20-24 98.03 97.52 96.35 89.00
25 or more 95.19 94.27 93.92 89.06
Census region of main office
Northeast 95.81 95.40 93.75 86.04
New England 94.67 94.67 93.18 78.74
Middle Atlantic 96.24 95.68 93.97 88.83
Midwest 96.48 96.23 95.71 88.01
East North Central 96.54 96.54 95.76 86.18
West North Central 96.36 95.62 95.62 91.67
South 96.05 95.43 94.93 90.62
South Atlantic 96.43 95.80 95.10 90.93
East South Central 96.51 95.49 95.49 91.69
West South Central 95.18 94.80 94.36 89.55
West 96.37 95.97 95.33 89.38
Mountain 97.25 97.25 97.21 91.53
Pacific 96.08 95.54 94.71 88.66
Urbanization at main office
Urban 96.45 96.09 95.29 89.35
Rural 95.12 94.37 93.77 86.91
Number of offices
One 95.68 95.22 94.42 87.91
Two 100.00 99.63 99.37 94.53
Three or more 99.13 99.13 98.14 98.14
Sales area
Primarily within U.S. 96.10 95.70 94.97 88.98
International or global 97.81 96.54 95.13 86.08
Owners' participation
Owner management 95.93 95.46 94.66 88.11
Hired management 99.16 99.16 98.85 97.80
Race, ethnicity, and sex of
majority owners
Nonwhite or Hispanic 93.86 93.45 92.96 87.61
Non-Hispanic white 96.56 96.11 95.35 89.05
White 96.37 95.88 95.14 88.85
Black 91.33 91.33 90.74 85.41
Asian or Pacific Islander 97.50 97.50 96.93 94.36
American Indian or Alaska
Native 92.67 92.67 92.67 77.48
Hispanic 92.95 91.88 91.05 85.23
Non-Hispanic 96.36 95.96 95.25 89.08
Female 91.85 91.34 90.72 82.00
Male 97.53 97.09 96.31 90.99
Ownership equally divided by
sex 98.34 98.34 97.00 92.11
Financial institution
Depository
Category
Thrift
Savings Credit
Any institution union
All firms, 1998 12.06 6.29 5.90
All firms, 1993 15.37 11.80 4.04
Number of employees(1)
0-1 13.46 5.07 8.40
2-4 11.93 6.20 5.96
5-9 13.29 8.57 4.89
10-19 10.57 4.60(*) 5.98
20-49 7.33 5.65 1.68(*)
50-99 9.38 8.79 .90(*)
100-499 6.39 6.14(*) .38(*)
Fiscal year sales (thousands
of dollars)
Less than 25 14.75 4.33 10.43
25-49 13.08 5.80 7.27
50-99 11.81 6.34 5.47
100-249 12.60 7.64 5.16
250-499 9.72 4.62 5.11
500-999 12.47 8.70 4.39
1,000-2,499 11.00 6.99 4.26(*)
2,500-4,999 9.30 8.43(*) 1.06(*)
5,000-9,999 5.78(*) 3.29(*) 2.48(*)
10,000 or more 5.16(*) 5.16(*) .00(*)
End-of-year assets (thousands
of dollars)
Less than 25 13.33 5.55 8.01
25-49 11.75 5.87 5.88
50-99 11.94 5.84 6.09
100-249 11.74 7.84 3.91
250-499 10.56 5.41 5.38
500-999 13.47 10.29 3.77(*)
1,000-2,499 10.11 7.39 2.72(*)
2,500-4,999 7.26(*) 7.06(*) .20(*)
5,000 or more 3.58(*) 3.58(*) .00(*)
Organizational form
Proprietorship 15.42 7.12 8.53
Partnership 12.24 6.67(*) 5.58(*)
S corporation 9.70 6.05 3.71
C corporation 6.49 4.39 2.14
Standard industrial
classification
Construction and mining
(10-19) 15.26 8.56 6.70
Primary manufacturing (20-29) 12.27 7.74(*) 4.54(*)
Other manufacturing (30-39) 4.11(*) 2.72(*) 1.39(*)
Transportation (40-49) 10.41 5.10(*) 5.31(*)
Wholesale trade (50-51) 9.92 5.98(*) 3.94(*)
Retail trade (52-59) 8.61 5.38 3.63
Insurance agents and real
estate (60-69) 11.49 7.06 4.67(*)
Business services (70-79) 13.83 5.94 7.90
Professional services (80-89) 14.64 7.01 7.82
Years under current ownership
0-4 12.14 4.27 8.15
5-9 11.18 5.47 5.88
10-14 12.58 7.85 4.72
15-19 11.96 6.63 5.44
20-24 11.60 5.17 6.43
25 or more 13.23 9.25 4.13
Census region of main office
Northeast 14.40 11.38 3.10
New England 24.42 17.77 6.68(*)
Middle Atlantic 10.58 8.94 1.74(*)
Midwest 13.62 7.41 6.20
East North Central 15.96 9.72 6.24
West North Central 8.91 2.78(*) 6.13
South 7.77 3.17 4.65
South Atlantic 7.29 3.67 3.72
East South Central 6.44(*) 4.83(*) 1.61(*)
West South Central 9.26 1.49(*) 7.77
West 14.41 5.60 9.20
Mountain 15.39 2.59(*) 12.80
Pacific 14.09 6.60 8.00
Urbanization at main office
Urban 11.74 5.95 5.93
Rural 13.34 7.67 5.82
Number of offices
One 12.01 6.00 6.13
Two 14.17 9.33 5.08
Three or more 8.61 6.43 2.61(*)
Sales area
Primarily within U.S. 12.08 6.26 5.97
International or global 11.80 7.14(*) 4.66(*)
Owners' participation
Owner management 12.34 6.23 6.24
Hired management 8.87 7.13 1.93(*)
Race, ethnicity, and sex of
majority owners
Nonwhite or Hispanic 11.13 4.84 6.54
Non-Hispanic white 12.28 6.57 5.83
White 12.24 6.40 5.94
Black 13.99 7.03 7.83
Asian or Pacific Islander 7.30 4.35(*) 2.95(*)
American Indian or Alaska
Native 15.19(*) 3.98(*) 11.21(*)
Hispanic 11.25 3.47(*) 7.77
Non-Hispanic 12.14 6.47 5.81
Female 13.67 5.78 8.15
Male 11.44 6.34 5.20
Ownership equally divided by
sex 13.91 8.82(*) 5.10(*)
B. Nondepository financial institutions and nonfinancial suppliers
Nondepository financial
institution
Category
Any Finance Brokerage
company
All firms, 1998 32.65 14.47 10.88
All firms, 1993 30.80 13.82 10.20
Number of employees(1)
0-1 17.28 6.78 5.84
2-4 28.37 13.54 8.75
5-9 38.53 17.02 12.44
10-19 53.46 21.41 17.43
20-49 57.69 25.59 23.94
50-99 60.01 27.29 21.45
100-499 71.66 30.38 32.58
Fiscal year sales (thousands
of dollars)
Less than 25 11.65 4.90 2.27(*)
25-49 20.55 8.41 6.23(*)
50-99 22.73 10.08 4.76
100-249 32.48 15.81 11.33
250-499 39.53 14.93 14.49
500-999 42.86 19.99 11.26
1,000-2,499 57.28 25.47 23.14
2,500-4,999 60.07 30.76 20.85
5,000-9,999 70.25 25.66 28.05
10,000 or more 70.95 30.84 41.20
End-of-year assets (thousands
of dollars)
Less than 25 17.02 7.90 4.45
25-49 25.51 12.29 9.69
50-99 36.14 16.23 11.23
100-249 41.55 18.09 12.11
250-499 43.99 18.16 15.22
500-999 54.74 23.15 21.25
1,000-2,499 57.01 23.82 22.76
2,500-4,999 64.62 25.90 36.86
5,000 or more 68.01 30.11 29.87
Organizational form
Proprietorship 23.90 10.75 7.61
Partnership 29.60 15.53 6.55
S corporation 39.70 16.84 13.79
C corporation 47.03 20.54 17.02
Standard industrial
classification
Construction and mining
(10-19) 31.12 18.06 10.87
Primary manufacturing (20-29) 31.79 12.04 6.93
Other manufacturing (30-39) 37.88 11.46 15.79
Transportation (40-49) 34.83 19.38 6.90
Wholesale trade (50-51) 42.10 19.18 13.24
Retail trade (52-59) 28.71 13.15 5.50
Insurance agents and real
estate (60-69) 29.88 13.90 10.79
Business services (70-79) 29.31 13.38 8.33
Professional services (80-89) 38.24 13.77 19.38
Years under current ownership
0-4 28.33 13.72 5.78
5-9 33.84 14.55 9.00
10-14 37.13 16.37 12.97
15-19 34.33 13.50 13.65
20-24 30.81 14.02 12.57
25 or more 30.81 13.67 15.81
Census region of main office
Northeast 36.04 16.46 14.89
New England 35.00 16.91 15.31
Middle Atlantic 36.44 16.29 14.74
Midwest 30.15 11.73 11.01
East North Central 31.51 12.21 11.31
West North Central 27.41 10.76 10.41
South 31.16 14.59 8.27
South Atlantic 34.37 16.37 8.88
East South Central 29.49 13.80 7.91
West South Central 26.82 12.11 7.45
West 34.13 15.17 11.12
Mountain 29.71 13.17 8.11
Pacific 35.60 15.83 12.12
Urbanization at main office
Urban 34.32 15.16 11.98
Rural 26.01 11.75 6.49
Number of offices
One 30.61 13.43 10.23
Two 45.87 21.88 14.95
Three or more 50.30 21.26 17.09
Sales area
Primarily within U.S. 32.19 14.21 10.82
International or global 41.47 18.94 12.31
Owners' participation
Owner management 31.69 14.10 10.57
Hired management 43.23 18.19 14.44
Race, ethnicity, and sex of
majority owners
Nonwhite or Hispanic 30.91 14.17 7.09
Non-Hispanic white 32.88 14.54 11.55
White 32.69 14.49 11.17
Black 28.74 15.03 6.02
Asian or Pacific Islander 32.73 12.58 9.27
American Indian or Alaska
Native 40.50(*) 22.55(*) 14.26(*)
Hispanic 30.40 13.70 5.63
Non-Hispanic 32.74 14.51 11.23
Female 29.18 12.05 9.71
Male 33.55 15.06 11.43
Ownership equally divided by
sex 36.48 18.08 8.06
Nondepository
financial Nonfinancial
institution supplier
Category
Leasing Other Any(2)
company
All firms, 1998 7.48 7.17 12.46
All firms, 1993 8.56 3.59 15.61
Number of employees(1)
0-1 3.37 3.95 9.04
2-4 4.64 5.81 10.02
5-9 10.22 8.91 13.59
10-19 17.80 11.02 20.40
20-49 12.12 13.28 25.45
50-99 23.02 17.00 18.85
100-499 23.42 17.32 18.50
Fiscal year sales (thousands
of dollars)
Less than 25 1.44(*) 3.26 9.46
25-49 1.93(*) 5.40 6.21
50-99 5.29 4.33 9.36
100-249 7.41 6.13 13.36
250-499 7.93 8.97 12.52
500-999 14.84 11.33 16.84
1,000-2,499 12.77 9.82 19.68
2,500-4,999 18.26 11.96 17.17
5,000-9,999 13.49 18.63 20.13
10,000 or more 17.49 19.34 15.94
End-of-year assets (thousands
of dollars)
Less than 25 3.61 4.07 7.93
25-49 4.25 4.01 7.40
50-99 7.98 7.27 12.68
100-249 9.45 10.46 17.06
250-499 10.89 8.97 14.39
500-999 16.26 10.43 19.11
1,000-2,499 10.48 16.00 25.80
2,500-4,999 26.98 10.44 14.03
5,000 or more 16.14 17.28 27.33
Organizational form
Proprietorship 3.58 5.06 10.86
Partnership 9.42 5.16(*) 9.00
S corporation 11.73 7.65 13.98
C corporation 11.39 12.56 15.85
Standard industrial
classification
Construction and mining
(10-19) 3.52 4.50 7.74
Primary manufacturing (20-29) 13.00 6.54 18.87
Other manufacturing (30-39) 9.59 8.97 16.99
Transportation (40-49) 7.55 8.65 13.77
Wholesale trade (50-51) 9.66 10.87 13.09
Retail trade (52-59) 4.21 11.44 14.82
Insurance agents and real
estate (60-69) 7.43 4.68 12.63
Business services (70-79) 9.06 5.59 12.33
Professional services (80-89) 8.87 5.50 10.41
Years under current ownership
0-4 6.64 7.70 13.55
5-9 10.44 6.34 10.63
10-14 8.43 8.56 11.53
15-19 7.29 7.65 13.67
20-24 5.80 6.76 15.43
25 or more 3.61 5.65 11.51
Census region of main office
Northeast 7.14 6.73 12.75
New England 6.60 6.31 13.94
Middle Atlantic 7.34 6.89 12.29
Midwest 6.69 7.08 12.69
East North Central 6.82 7.63 14.21
West North Central 6.44 5.97 9.65
South 7.95 6.85 11.70
South Atlantic 9.56 6.67 14.03
East South Central 7.71 6.31 7.29
West South Central 5.46 7.43 10.22
West 7.79 7.96 13.02
Mountain 6.55 6.82 17.54
Pacific 8.20 8.33 11.51
Urbanization at main office
Urban 8.16 7.48 12.00
Rural 4.77 5.93 14.33
Number of offices
One 6.79 6.64 11.71
Two 10.29 10.21 16.52
Three or more 16.40 13.03 20.05
Sales area
Primarily within U.S. 7.31 6.76 12.35
International or global 10.13 16.04 13.56
Owners' participation
Owner management 7.09 6.98 12.31
Hired management 11.47 9.26 13.40
Race, ethnicity, and sex of
majority owners
Nonwhite or Hispanic 7.56 9.00 13.47
Non-Hispanic white 7.41 6.85 12.31
White 7.45 6.84 12.37
Black 7.89 8.18 16.57
Asian or Pacific Islander 6.13 13.23 12.59
American Indian or Alaska
Native 8.67(*) 6.37(*) 4.31(*)
Hispanic 7.87 7.15 13.57
Non-Hispanic 7.39 7.20 12.39
Female 6.43 7.37 12.29
Male 7.54 7.07 12.56
Ownership equally divided by
sex 12.47 7.77(*) 9.81
Nonfinancial supplier
Category
Family Other Government
and businesses
individuals
All firms, 1998 6.14 5.95 1.04
All firms, 1993 8.90 7.43 .64
Number of employees(1)
0-1 3.95 4.82 .45(*)
2-4 5.90 4.12 .62(*)
5-9 6.15 6.88 1.29(*)
10-19 8.66 10.46 2.05(*)
20-49 12.93 11.82 3.20(*)
50-99 6.88 9.28 3.29(*)
100-499 4.63 12.87 2.75(*)
Fiscal year sales (thousands
of dollars)
Less than 25 5.19 3.87 .54(*)
25-49 2.92(*) 3.03(*) .26(*)
50-99 4.78 4.84 .51(*)
100-249 7.52 5.57 .91(*)
250-499 7.32 4.70 1.32(*)
500-999 6.29 10.56 .82(*)
1,000-2,499 8.35 9.86 3.34(*)
2,500-4,999 7.41 8.81 1.55(*)
5,000-9,999 6.20(*) 11.17 3.72(*)
10,000 or more 4.82 10.73 1.69(*)
End-of-year assets (thousands
of dollars)
Less than 25 4.06 3.57 .37(*)
25-49 3.71 3.57(*) .10(*)
50-99 6.29 6.51 .21(*)
100-249 8.85 8.18 1.42(*)
250-499 7.71 6.48 1.89(*)
500-999 9.85 7.74 2.47(*)
1,000-2,499 9.87 13.90 3.47(*)
2,500-4,999 4.00(*) 6.88 3.47(*)
5,000 or more 5.80 20.93 2.46(*)
Organizational form
Proprietorship 5.68 5.13 .57(*)
Partnership 2.74(*) 4.27(*) 1.98(*)
S corporation 6.37 7.43 .93
C corporation 8.18 6.82 2.03
Standard industrial
classification
Construction and mining
(10-19) 3.44 4.35 .92(*)
Primary manufacturing (20-29) 7.81 12.14 1.30(*)
Other manufacturing (30-39) 10.34 5.13 1.76(*)
Transportation (40-49) 6.17(*) 7.61(*) .02(*)
Wholesale trade (50-51) 7.19 4.43 1.77(*)
Retail trade (52-59) 5.53 8.18 1.93
Insurance agents and real
estate (60-69) 8.33 4.98(*) .00
Business services (70-79) 6.90 5.24 .74(*)
Professional services (80-89) 4.94 5.31 .68(*)
Years under current ownership
0-4 7.84 5.33 .92(*)
5-9 6.44 3.74 .54(*)
10-14 4.95 6.51 .96(*)
15-19 7.19 6.83 1.38(*)
20-24 5.93 7.17 2.77(*)
25 or more 3.42 7.99 .80(*)
Census region of main office
Northeast 5.92 6.41 .68(*)
New England 7.03(*) 6.71 .93(*)
Middle Atlantic 5.50 6.29 .59(*)
Midwest 6.10 6.16 1.20(*)
East North Central 7.61 6.59 .79(*)
West North Central 3.08(*) 5.30 2.02(*)
South 5.18 5.90 .96
South Atlantic 6.95 6.58 .63(*)
East South Central 3.97(*) 2.49(*) 1.66(*)
West South Central 2.94 6.59 1.15(*)
West 7.50 5.54 1.26
Mountain 8.89 7.38 3.60(*)
Pacific 7.04 4.93 .49(*)
Urbanization at main office
Urban 5.84 6.08 .79
Rural 7.34 5.46 2.05
Number of offices
One 5.89 5.46 1.08
Two 6.51 9.67 .47(*)
Three or more 11.35 7.88 1.51(*)
Sales area
Primarily within U.S. 6.16 5.81 1.05
International or global 5.29 8.10 .87(*)
Owners' participation
Owner management 6.17 5.72 1.07
Hired management 5.31 8.36 .71(*)
Race, ethnicity, and sex of
majority owners
Nonwhite or Hispanic 8.05 5.01 1.08(*)
Non-Hispanic white 5.85 6.15 .99
White 5.95 6.06 1.03
Black 10.32 5.81 1.29(*)
Asian or Pacific Islander 7.21(*) 5.81(*) .22(*)
American Indian or Alaska
Native 3.98(*) .32(*) .32(*)
Hispanic 8.29 4.73(*) 1.64(*)
Non-Hispanic 6.03 6.05 .96
Female 6.07 5.36 1.22(*)
Male 6.06 6.26 1.01
Ownership equally divided by
sex 6.12(*) 4.07(*) .56(*)
(1.) See table 1, note 1.
(2.) Includes a few sources for which the type could not be determined
(fewer than 1 percent of the sources identified by respondents).
(*) Fewer than fifteen firms in this category reported using this
supplier, too small a number on which to base a reliable statistic.
Among nondepository financial institutions, the use of leasing companies was somewhat less common and the use of finance companies and "other" nondepository financial institutions (including mortgage banking and insurance companies) was somewhat more common relative to 1993. These changes are consistent with the finding that the percentage of small businesses that had outstanding mortgages increased over the period between surveys. Depository Financial Institutions Depository institutions provided at least one financial service to about 95 percent of small businesses in 1998 (roughly the same percentage of small businesses that had a business checking or savings account in 1998). Commercial banks were used by a far larger percentage of firms (89 percent) than were thrift institutions (savings institutions and credit unions) (12 percent).(23) In general, the percentage of firms using commercial banks increased with firm size; in contrast, the percentage using thrifts generally declined with firm size. Proprietorships, which are generally the smallest firms, were less likely than firms with other organizational forms to use commercial banks but were about twice as likely as corporations to use thrifts. The use of thrift institutions declined between 1993 and 1998, from 15 percent to 12 percent of firms. As in 1993, small businesses in New England were more likely to use thrifts than were those in other parts of the country, probably because of the relatively large number of savings banks in New England. Black-, Hispanic-, and female-owned firms were less likely than non-Hispanic- and white-owned firms to use commercial banks. Black- and female-owned firms were more likely to use thrifts than were white-and male-owned businesses. Asian-owned firms were the most likely to use commercial banks and the least likely to use thrifts compared with other ownership groups. Nondepository Financial Institutions Nondepository financial institutions were a source of financial services for about one-third of small businesses in 1998, somewhat more than the fraction in 1993. The most commonly used source was finance companies, followed by brokerage companies. The use of each type of nondepository financial supplier increased with firm size. About 72 percent of small businesses with more than 100 employees used at least one of these sources; about 30 percent used finance companies and brokerage companies. Use of nondepository financial institutions also differed by organizational form and ranged from 24 percent of proprietorships to 47 percent of C corporations. Proprietorships and partnerships were half as likely as corporations to use brokerage companies. The use of nondepository financial institutions varied with the race, ethnicity, and sex of a firm's owners. Female- and black-owned firms were the least likely to use these sources. The differences among groups were greatest in the use of brokerage companies; for example, 11 percent of white-owned businesses used brokerages, compared with 6 percent of black-owned and Hispanic-owned firms. Female-owned firms were less likely than male-owned firms to use finance companies, brokerages, and leasing companies. Nonfinancial Suppliers About 12 percent of the small businesses used nonfinancial sources for financial services in 1998. About 6 percent used family and individuals and other businesses, and 1 percent used government sources.(24) The use of nonfinancial sources did not consistently increase with firm size. For example, the percentage of firms using such sources increased with employment for groups of firms with up to forty-nine employees and with 1998 sales of up to $2,500,000. For larger firms, the percentage using such sources generally remained at the higher levels. Individuals and family were used almost exclusively for credit lines, loans, and leases (table 6). It was expected that the use of individuals or family members as a source of financial services would be most important for younger firms. These firms sometimes have difficulty borrowing from financial institutions, in part because financial institutions often require that prospective borrowers provide several years of financial statements with their loan applications. Nonfinancial sources, especially family members or other individuals familiar with prospective borrowers, may be better positioned to evaluate credit-worthiness and to monitor the financial condition of younger firms. Alternatively, nonfinancial sources may have lower credit standards than financial institutions. The survey results show that in 1998 the use of family or individuals was most common among firms younger than five years and among those that had been operating for fifteen to nineteen years; it was least common among firms that had been operating for more than twenty-five years. Thus, the expectation regarding firm age and the use of nonfinancial sources is not entirely consistent with the descriptive data from the survey. However, further analysis that statistically controls for factors besides age could lead to a different conclusion.
6. Percentage of small businesses using selected of
financial services, by selected service, 1998
Financial institution
Service Any
supplier
Any Depository
Any Commercial
bank
Any 96.18 95.74 94.98 88.86
Liquid asset account(1) 94.43 94.12 93.58 86.67
Checking 94.04 93.73 93.19 86.30
Savings 22.20 21.91 20.56 17.84
Credit lines, loans,
and capital leases 55.09 51.36 41.96 38.88
Line of credit 27.71 27.04 25.61 24.70
Mortgage 13.29 11.68 10.16 8.82
Vehicle 20.55 20.11 13.16 11.30
Equipment 10.18 8.89 5.91 5.36
Capital lease 10.59 9.58 2.65 2.40
Other(2) 9.92 5.02 4.45 4.22
Financial management(3) 49.81 48.10 40.25 38.15
Transaction 41.07 39.75 37.24 35.27
Cash-management 5.21 5.09 4.73 4.54
Credit-related 3.09 3.02 2.47 2.39
Brokerage 4.34 4.18 .26 .25
Trust and pension 12.62 11.65 2.76 2.71
Financial institution
Depository Non-
deposi-
tory
Service
Thrift
Any Savings Credit Any
institution union
Any 12.06 6.29 5.90 32.65
Liquid asset account(1) 8.89 4.66 4.26 3.18
Checking 8.06 4.28 3.80 1.31
Savings 3.08 1.08 1.99 2.10
Credit lines, loans,
and capital leases 4.87 2.45 2.45 20.11
Line of credit 1.15 .74 .41 2.21
Mortgage 1.42 1.18 .24(*) 1.85
Vehicle 2.07 .48 1.59 8.59
Equipment .55 .28(*) .27(*) 3.37
Capital lease .25(*) .16(*) .10(*) 7.63
Other(2) .24(*) .10(*) .13(*) .69
Financial management(3) 3.00 1.51 1.52 17.29
Transaction 2.78 1.41 1.39 5.60
Cash-management .31(*) .22(*) .09(*) .46
Credit-related .12(*) .00(*) .11(*) .67
Brokerage .01(*) .00(*) .01(*) 4.05
Trust and pension .06(*) .01(*) .04(*) 9.27
Financial institution
Nondepository
Service
Finance Brokerage Leasing Other
company company
Any 14.47 10.88 7.48 7.17
Liquid asset account(1) .49 2.58 .00(*) .16(*)
Checking .26(*) .98 .00(*) .07(*)
Savings .28 1.73 .00(*) .10(*)
Credit lines, loans,
and capital leases 12.62 .31 7.37 1.67
Line of credit 1.64 .23(*) .34(*) .14(*)
Mortgage .58 .00(*) .07(*) 1.23
Vehicle 7.91 .04(*) .61 .07(*)
Equipment 2.14 .00(*) 1.31 .00(*)
Capital lease 2.30 .05(*) 5.59 .02(*)
Other(2) .37 .04(*) .05(*) .24(*)
Financial management(3) 2.90 9.74 .42 5.68
Transaction 1.64 .49 .20(*) 3.62
Cash-management .06(*) .40 .00(*) .00(*)
Credit-related .51 .00(*) .14(*) .02(*)
Brokerage .11(*) 3.84 .05(*) .07(*)
Trust and pension .76 6.56 .04(*) 2.14
Nonfinancial supplier
Service
Family Other Govern-
Any and businesses ment
individuals
Any 12.46 6.14 5.95 1.04
Liquid asset account(1) .34(*) .04(*) .30(*) .00(*)
Checking .14(*) .04(*) .10(*) .00(*)
Savings .26(*) .03(*) .23(*) .00(*)
Credit lines, loans,
and capital leases 9.82 6.11 3.13 1.04
Line of credit .80 .02(*) .77 .01(*)
Mortgage 1.82 1.29 .25(*) .33
Vehicle .45 .28(*) .14(*) .00(*)
Equipment 1.42 .43(*) .88 .11(*)
Capital lease 1.17 .27(*) .86 .03(*)
Other(2) 5.23 4.15 .55 .58
Financial management(3) 3.25 .31(*) 2.89 .09(*)
Transaction 2.07 .26(*) 1.76 .09(*)
Cash-management .18(*) .03(*) .15(*) .00(*)
Credit-related .14(*) .07(*) .07(*) .00(*)
Brokerage .14(*) .01(*) .14(*) .00(*)
Trust and pension .95 .02(*) .93 .00(*)
(1.) See table 4, note 2.
(2.) See table 4, note 3.
(3.) See table 4, note 5.
(*) Fewer than fifteen firms reported using this supplier,
too small a number on which to base a reliable statistic.
USE OF FINANCIAL SERVICES SUPPLIERS, BY SERVICE The data reviewed thus far have examined separately the use of financial services by firm characteristics and the sources of financial services by firm type. This section reports on the types of financial services provided to small businesses by each type of financial service supplier. Suppliers of Checking and Savings Services As in 1993, commercial banks dominated the provision of checking services to small businesses in 1998, supplying these services to 86 percent of all firms surveyed (table 6). Savings institutions and credit unions were sources for fewer than 5 percent of firms. No other single type of supplier provided more than a trivial share of checking services. Commercial banks were also the dominant supplier of savings services, far outpacing the next most common providers (thrift institutions and brokerage firms). Suppliers of Lines of Credit, Loans, and Capital Leases Commercial banks were also the most common supplier of lines of credit, loans, and capital leases in 1998; about 39 percent of small businesses had a credit line, loan, or capital lease from a commercial bank at the end of 1998 (compared with 41 percent of firms at the end of 1993). Nondepository financial institutions and family and individuals were also important suppliers; in 1998, as in 1993, about 20 percent of firms obtained credit lines from or had outstanding loan or capital lease balances with nondepository financial institutions (specifically, finance companies and leasing companies); 6 percent had loans from family and individuals (compared with 9 percent in 1993). Although suppliers other than commercial banks were important sources of credit, commercial banks were three times more likely than finance companies, five times more likely than leasing companies, and about six times more likely than family or individuals to be the source of these services for small businesses in 1998. Credit lines were supplied almost exclusively by commercial banks: About 25 percent of firms obtained credit lines from commercial banks, compared with about 2 percent for the next most important source, finance companies. Vehicle loans were obtained mainly from commercial banks (11 percent of firms) and finance companies (about 8 percent). Equipment loans were also obtained mainly from these sources, with finance companies used at about half the rate of commercial banks. The only type of credit service that was not provided mainly by commercial banks was capital leases, which were twice as likely to be obtained from leasing companies as from commercial banks or finance companies; however, only about 11 percent of small businesses had a capital lease in 1998. Finally, family and individuals provided "other" loans at about the same rate as did commercial banks. Suppliers of Financial Management Services Commercial banks were the dominant supplier of financial management services, serving about 38 percent of small businesses in 1998. Brokerages, the second most common source of these services, were used by about 10 percent of firms. Brokerages were the leading provider of both brokerage services and trust and pension services, and commercial banks were the leading provider of transaction, cash-management, and credit-related services. SUMMARY The 1998 Survey of Small Business Finances provides detailed information on the characteristics of small businesses and on the types and sources of credit and other financial services they use. Although the discussion in this article is based on descriptive statistics, the data suggest interesting behavior patterns and differences in the use of credit by small businesses. (Standard errors for the differences have not been calculated, so it is uncertain whether these differences are statistically significant.) The 1998 survey is the third in a series of surveys of small businesses sponsored by the Board of Governors. Straightforward comparisons reveal some remarkable similarities in the findings from the 1998 and 1993 surveys. In particular, commercial banks continued in 1998 to be the dominant source of financial services for small businesses, including checking and savings accounts, loans of all types except capital leases, and all financial management services other than brokerage services and trust and pension services. Comparison |