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Wide-ranging Review of Small Firm Financial Markets Features Data from Survey of Small Business Finances

July 13, 2009

Access to credit, a top issue for small businesses in the current climate, is the focus of a new compendium of studies sponsored by the Office of Advocacy. The structure of small business financial markets has been changing dramatically over recent decades, as large financial institutions have increased in importance. Small Business in Focus: Finance was released today at an Advocacy symposium.

“In this time of financial challenges, it is particularly important to understand small business borrowers and the markets that serve them,” said Advocacy Senior Economist Charles Ou. “We hope that this compendium and today’s symposium will be a starting place for ongoing discussions of the small firm financial markets, as well as the datasets available to understand them.” Dr. Ou will retire in July after 32 years of service.

The studies featured in the compendium are based primarily on the 2003 Survey of Small Business Finances (SSBF). The SSBF has been one of the highest quality data sets for analyzing the credit issues faced by small firms. The Federal Reserve Board conducted the SSBF in 1987, 1993, 1997, and 2003 and will rely on the 2010 Survey of Consumer Finances for future data on business-owning households. Four studies are featured:

A report by Advocacy economists Charles Ou and Victoria Williams provides an overview of small business borrowers, the credit and capital markets that serve them, and small business borrowing patterns.

A paper by George Haynes and James Brown explores in detail small business financing patterns, including the relative importance of banks, thrifts, and finance companies in these markets. The share of small firms using any credit increased from almost 80 percent in 1993 to almost 90 percent in 2003.

A second paper by the same authors looks at the critical importance of internal funding for small business growth and finds that the relationship between internal funds and employment growth is especially important for very small and women-owned firms.

A study by Rebel Cole looks at the credit markets and identifies four kinds of small businesses: nonborrowers, approved borrowers, discouraged borrowers, and denied borrowers. In each of the three SSBFs, Cole finds that firms owned by African Americans are 10 to 18 percent more likely to be rejected than other firms, even after incorporating an extensive set of control variables available from the SSBFs.

The full studies are available online at

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