Financing SMEs and Entrepreneurs 2020

50. United States

Key facts on SME financing

During the 2010-18 recovery period, U.S. real GDP posted an average annual growth rate of 2.3%. While this growth rate was slightly lower than the 2.9% average recorded during the longer post-WWII period, it was sufficient to absorb excess labour supply created during the 2008-09 recession. The employment-to-population ratio rose continuously from 42% during March of 2010 to 45% during July of 2018, not far from the recent peak ratio 47% recorded during March of 2000. During this period, the index of real output per hour posted an average annual growth rate of 0.7%, while the index of real compensation per hour posted an average annual growth rate of 0.6%.

Net formation of employer firms and employer SMEs rebounded modestly since 2012, but as of 2015 they both stood 2.5% lower than their peak 2007 levels. However, the Bureau of Labor Statistics point to a continued growth during 2016 and 2017 with levels surpassing 2007 highs.

SME loan origination (flow data) indicates the new supply of loans to SMEs. It posted solid gains from October 2009 through September 2015, but then declined during the next sixteen months, bottoming during February 2017. 2018 marked a slight uptick in new lending to SMEs. Stock data show the value of small loans going to businesses declined continuously from 2008Q2 to 2013Q3, but then posted a modest recovery thereafter.

Since early 2010, bankers have been loosening lending standards for loans to large firms and SMEs, and SME surveys report that loan availability is near historical highs. However, the same data sources point to soft demand for SME loans. Interest rates for SME loans posted dramatic declines during 2006Q3 to 2009Q3, and then posted a flat to modest downward trend up to 2015Q4, when they started to rise.

At USD 29 trillion, SBA’s loan guarantees are remaining at high levels. The number of guarantees have underperformed their dollar value, but nonetheless stood about 24% higher than 2009 lows as of the end of 2017. Like other SBA capital access programmes, SBIC financing rebounded strongly during the 2010-15 period, reaching USD 6.3 billion during 2015, more than tripling the USD 1.9 billion low recorded in 2009. More recently, and partly mirroring the decline in the overall VC market, the SBIC programme experienced a 4.7 and 4.4% decline during 2016 and 2017 respectively. The pattern of venture capital deals mirrors the pattern seen in the SME loan markets, where the number of contracts underperform their dollar value. As of 2017, the number of VC deals has not surpassed the 2014 high of 10 509, all the while their dollar value as of 2018 stood at 132, much higher than the previous 2015 high of USD 82.2 billion.

Total bankruptcy filings have been on a continuous decline since 2011. Business bankruptcies started their continuous decline a year earlier. As a result, business bankruptcies during 2018 were 63% lower than 2009 peak levels. Delinquency rates of SME loans are at or near historical lows, with 31-90 days delinquency rates ranging 1.0-1.5%, and 91-180 delinquency rates remaining below 0.5%.

Table 50.1. Scoreboard for the United States

Indicator	Unit	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018
Debt
Outstanding business loans, SMEs. As of June 30	USD billion	687	711	695	652	608	588	585	590	599	613	619	633
Outstanding business loans, total. As of June 30	USD trillion	2.28	2.57	2.52	2.30	2.35	2.55	2.67	2.87	3.07	3.32	3.46	3 62
Share of SME outstanding loans	% of total outstanding business loans	30.1	27.7	27.6	28.4	25.9	23.1	21.9	20.6	19.5	18.5	17.9	17.5
New business lending, SMEs	USD: Index	119	94	74	77	97	100	105	120	147	140	140	145
Government loan guarantees, SMEs	USD billion	21	16	15	22	19	23	23	24	28	29	32	29
Government guaranteed loans, SMEs	Number of loans (in thousand)	108	66	57	66	52	54	53	61	70	69	71	63
Non-performing loans, total	% of all business loans	1.22	1.88	3.91	3.46	2.01	1.34	1.00	0.80	0.87	1.57	1.33	1.12
Non-performing loans, SMEs	% of all SME loans	2.14	2.62	3.24	2.62	1.90	1.44	1.21	1.22	1.22	1.28	1.34	1.41
Interest rate, SMEs	%	7.96	5.16	3.82	4.09	3.95	3.76	3.55	3.39	3.33	3.46	4.94	5.16
Interest rate, large firms	%	8.05	5.09	3.25	3.25	3.25	3.25	3.25	3.25	3.26	3.51	4.10	4.90
Interest rate spread	% points	-0.09	0.08	0.57	0.84	0.70	0.51	0.30	0.14	0.07	-0.05	0.84	0.26
Collateral, SMEs	% of SMEs needing collateral to obtain bank lending	..	..	..	..	..	..	..	..	..	..	92.90	94.30
Percentage of SME loan applications	SME loan applications/ total number of SMEs	..	..	..	..	..	..	..	..	..	..	55.20	67.30
Rejection rate	1-(SME loans authorised/ requested)	..	..	..	..	..	..	..	..	..	..	44.80	32.70
Utilisation rate	SME loans used/ authorised	..	..	..	..	..	..	..	..	..	..	47.50	46.60
Non-bank finance
Venture and growth capital	USD billion	36	37	27	31	44	42	47	72	82	76	82	132
Venture and growth capital (growth rate)	%, Year-on-year growth rate	..	3.1	-27.0	15.6	42.1	-6.1	13.6	51.6	14.3	-8.0	8.4	59.4
Leasing and hire purchases	USD billion	595	613	508	449	361	376	395	401	416	382	388	391
Factoring and invoice discounting	USD billion	..	..	..	..	146	100	111	130	105	99	98	104
Other indicators
Payment delays, B2B	Percent of Domestic Invoices Overdue	..	..	..	..	..	..	25.9	..	46.6	..	40.3	..
Bankruptcies, all businesses	Number (in thousand)	28.3	43.5	60.8	56.3	47.8	40.1	33.2	27.0	24.7	24.1	23.2	22.2
Bankruptcies, all businesses (growth rate)	%, Year-on-year growth rate	43.8	53.8	39.7	-7.5	-15.1	-16.2	-17.1	-18.8	-8.3	-2.5	-4.0	-4.0

Source: See Table 50.2.

SMEs in the national economy

The SBA broadly classifies small businesses as any firm with 500 or fewer employees.1 These firms account for about 30 million businesses, or 99.9% of all firms. They employ about 48% of the private sector employees, pay about 41% of the total private sector payroll and produce about 33% of identified goods exports. In addition, they generate about 62% of net new private sector jobs.

Net formation of employer firms have rebounded modestly since 2012. Notwithstanding this recovery, as of 2015 employer firms stood at 5.9 million, some 145 000 or 2.5% lower than their peak 2007 level. Employer SMEs experienced a similar 2.5% decline during the same period. Data from the Bureau of Labor Statistics point to a continued growth of employer firms and employer SMEs, with the 2016 and 2017 levels surpassing the peak 2007 levels.2

SME lending

Index data on SME loan origination (flow data) from Paynet indicates that the new supply of small business loans posted solid gains starting in October 2009 and peaked at 147 during September 2015.3 New SME lending then experienced a noticeable decline during the next sixteen months, bottoming at 128 during February 2017. In 2018, the index was close to the 2015 peak, at 145.

Stock data on small business loans are not publicly available. However, the Federal Deposit Insurance Corporation (FDIC) Call Reports provides stock data on loans for Commercial Real Estate (CRE) and Commercial and Industrial (C&I) by selected loan-balance size. In this data set, Small Business Loans are CRE and C&I loans up to USD 1 million and Large Business Loans are CRE and C&I loans greater than USD 1 million. This data shows that the value of small business loans held at FDIC insured institutions declined continuously from 2008Q2 to 2013Q3, but then posted a modest recovery thereafter. As of the end of 2018, the value of small business loans outstanding was still 11% lower than the peak level of 2008. The number of small business loans recorded a similar patter, and as of the end of 2017 were still 6% lower than peak 2008 levels.

The FDIC data can serve as an indicator of loan usage by the corporate sector and possibly by firm size. As such, the divergent patterns between the Paynet origination (flow) data and the FDIC balance (stock) data may imply that while financial institutions have been originating an increasing amount of SME loans, SMEs may be drawing down older loans and not replacing them with newer loans.

Credit conditions

Data from the Board of Governors of the Federal Reserve System (Fed) indicate that bankers have been loosening lending standards for loans to large firms and SMEs since early 2010, and data from the National Federation of Independent Businesses (NFIB) indicate SME loan availability is near historical highs. However, the same two sources indicate soft demand for SME loans.

Responding to the Fed’s accommodating interest rate policy, interest rates for SME loans posted dramatic declines from 8.2% posted during 2006Q3 to 3.6% during 2009Q3. Then, interest rates for SME loans posted a flat to modest downward trend up to 2015Q4, when they started to rise. As of 2018Q3 interest rates on SME loans stood at 5.0%.

Alternative sources of SME financing

The pattern of venture capital deals mirrors the pattern seen in the SME loan markets, where the number of contracts underperform the gains posted by the dollar value of those contracts. As of 2017, the number of VC deals has not surpassed the 2014 high of 10 509. The dollar value of VC deals during 2018, at 132 managed to surpass the 2015 high of USD 82.2 billion. The average size of all VC deals during 2017 stood at USD 9.3 million, an 81% increase from the USD 5.1 million posted during 2013.

Other indicators

Total bankruptcy filings have been on a continuous decline since the 2011, and business bankruptcies started their continuous decline a year earlier. As a result, business bankruptcies during 2018 were 63% lower than the 2009 peak levels.

Available data on business loans in general and small business loans specifically indicate that loan performances are showing strong and broad-based improvements, with delinquency rates at or near historical lows with 31-90 days delinquency rates hovering the 1.0-1.5% range, and 91-180 delinquency rates remaining below 0.5%.

Government policy response

The Role of the U.S. Small Business Administration

The SBA works with approximately 5 000 banks and credit unions, some 250 Community Development Corporations (CDCs), over 170 non-profit financial intermediaries and Community Development Financial Institutions (CDFIs), and approximately 300 small business investment companies (SBICs). The SBA Capital Access Program has several major sub-programs that provide guarantees and co-funding for a wide range of products designed to meet the diverse financial needs of small firms throughout their life cycle, starting from small start-ups to established firms.4

The largest of these programs, the 7(a) Loan Program, provides loan guarantees for working capital loans up to USD 5.0 million to new and existing small businesses. The second largest sub-program, the Certified Development Corporation 504 Loan Program, provides loan guarantees and co-funding for loans up to USD 5.0 or USD 5.5 million used for the purchases or construction of fixed assets.

The financial and economic crisis of 2008-09 had a pronounced impact on SBA’s Capital Access Programs. After several major interventions by the federal government, the dollar volume of these two programmes surpassed previous peak levels, reaching USD 31.6 billion during 2017.5 The number of loan Guarantees have underperformed the dollar value of guarantees. Nonetheless, at the end of 2017 they stood at nearly 71 000, about 24% higher than the 2009 low of 57 000 guarantees.

The Small Business Investment Company (SBIC) is the Agency’s third largest small business capital access program, which acts as a fund of fund for SBA certified venture capital firms. Like other SBA capital access programs, SBIC financing experienced a pronounced decline during the 2008-09 recession, with 2009 financing declining 30% from the recent peak 2007 levels. SBIC financing rebounded strongly during the 2010-2015 period, reaching USD 6.3 billion during 2015, more than tripling the USD 1.9 billion low of 2009. Partly mirroring the decline in the overall VC market, the SBIC program experienced a 4.7 and 4.4% decline during 2016 and 2017 respectively.

The Role of the U.S. Minority Business Development Agency

The Minority Business Development Agency (MBDA) is an agency of the United States Department of Commerce and is the only federal agency solely dedicated to fostering the growth and global competitiveness of U.S. minority business enterprises. MBDA funds a nationwide network of Business Centers, Export Centers, Advanced Manufacturing Centers, and a Federal Procurement Center. These centres provide the United States’ 11 million minority-owned businesses with a range of services, including Access to Capital, Access to Contracts, and Access to Markets.

For its Access to Capital program, MBDA leverages partner institutions and connects minority businesses with national and local resources. MBDA’s strategic partners include the Small Business Administration (SBA), Export-Import Bank of the United States (Exim), the Federal Depository Insurance Corporation (FDIC), National Credit Union Administration (NCUA), Office of the Comptroller of the Currency (OCC), and Community Development Financial Institution (CDFI) Fund. MBDA Business Center assist minority businesses in securing traditional and non-traditional capital from institutions like banks, credit unions, state and local economic development authorities, venture capital, and private equity.

In Fiscal Year 2019, MBDA invested about USD 20 million in its programs, helping its clients secure over USD 1.7 billion in financing and USD 3.1 billion in contracts, for a total of USD 4.8 billion of transactions.

Figure 50.1. Trends in SME and entrepreneurship finance in the United States

Source: See Table 50.2.

Statlink

Table 50.2. Sources and definitions of the United States’ Scoreboard

Indicator	Definition	Source
Debt
Outstanding business loans, SMEs	Loans Balances held at financial Institutions. Total loans under 1 000 000 to nonfram residential properties and Commercial and Industrial loans.thrift institutions, June 30 reports.	FDIC, Consolidated Reports of Condition and Income for U.S. Banks and thrift institutions, June 30 reports.
Outstanding business loans, total	Loan balances held at financial institutions. Comprising of "Secured by nonfarm nonresidential properties" + "Commercial and industrial loans" + "Commercial real estate loans not secured by real estate"	FDIC, Consolidated Reports of Condition and Income for U.S. Banks and thrift institutions, June 30 reports.
Share of SME outstanding loans	Calculated	Calculated
New business lending, total	not available	not available
New business lending, SMEs	Index, January 2005 = 100 The Small Business Lending Index (SBLI) measure the volume of small business loans issued over the past 30 days and are based on the most recent data from the largest commercial and industrial lenders in PayNet's U.S. database, including both loans and leases.	Thomson Reuters PayNet , Small Business Lending Index
Share of new SME lending	Calculated	Calculated
Outstanding short-term loans, SMEs	Not available	Not available
Outstanding long-term loans, SMEs	Not available	Not available
Share of short-term SME lending	Calculated	Calculated
Government loan guarantees, SMEs	Full value of outstanding loans guaranteed by the U.S. Small Business Administration 7(a) and 504 loan programsUS SBA, 7(a) and 504 loan guarantee programs	U.S. Small Business Administration 7(a) and 504 loan programs
Government guaranteed loans, SMEs	Number of SBA Guaranteed loans to SMEs	U.S. Small Business Administration 7(a) and 504 loan programs
Direct government loans, SMEs	Not available	Not available
Non-performing loans, total	Business Loan Delinquency Rate at all Commercial Banks (loans that are past due thirty days or more days).	Board of Governors of the Federal Reserve System, Charge-off and Delinquency Rates
Non-performing loans, SMEs	Small Business Loans delinquent 31-90 Days, Delinquency RateThomson Reuters/PayNet	Thomson Reuters PayNet
Interest rate, SMEs	Definition for 2007 to 2016 = Annual average from quarterly data. Definition for 2017 Data =Interest Rates on Outstanding Fixed-Rate Term, Commercial and Industrial (C&I) Loans made to firms with annual revenues equal or less than USD 5.0 million	2007 to 2016: Fed. Res. Board, Survey of Terms of Business Lending, E2 Release, SURVEY OF TERMS OF BUSINESS LENDING. 2017: Kansas City FED "Small Business Lending Survey" https://www.kansascityfed.org/research/indicatorsdata/smallbusinesslendingsurvey
Interest rate, large firms	Bank Prime Loan Rate, Percent, Annual, Not Seasonally Adjusted	Source: Board of Governors of the Federal Reserve System (US) , Selected Interest Rates (H.15)
Interest rate spread	Calculated	Calculated
Collateral, SMEs	Collateral Percent: Percent of New Fixed-Rate Term Loans Secured with collateral of any kind, dollar value, loans made to firms with annual revenues equal or less than USD 5.0 million.	Kansas City FED "Small Business Lending Survey" https://www.kansascityfed.org/research/indicatorsdata/smallbusinesslendingsurvey
Percentage of SME loan applications	Percent of Application Approved: Percent of approved of the dollar amount in applications received, loans applications from firms with annual revenues equal or less than USD 5.0 million.	Kansas City FED "Small Business Lending Survey" https://www.kansascityfed.org/research/indicatorsdata/smallbusinesslendingsurvey
Rejection rate	Percent of Application Rejected: (1-Percent of Applications Approved)	Kansas City FED "Small Business Lending Survey" https://www.kansascityfed.org/research/indicatorsdata/smallbusinesslendingsurvey
Utilisation rate	Median Usage Percent of New Fixed-Rate Loans Made Under Commitment, dollar amount of loans made to firms with annual revenues equal or less than USD 5.0 million	Kansas City FED "Small Business Lending Survey" https://www.kansascityfed.org/research/indicatorsdata/smallbusinesslendingsurvey
Non-bank finance
Venture and growth capital	Total VC and Angel, deal value, USD bilion	National Venture Capital Association
Venture and growth capital (growth rate)	Calculated	Calculated
Leasing and hire purchases	Finance Companies, Owned and Managed Receivables, Total business, (Levels)	Board of Governor of the Federal Reserve, Finance Company (G20)
Factoring and invoice discounting	Total Factoring Volume, USD million	FCI, World Factoring Statistics, https://fci.nl/en/home
Other indicators
Payment delays, B2B	Percent of Domestic Invoices Overdue	Statistical appendix -Atradius Payment Practices Barometer Survey results the Americas.
Bankruptcies, SMEs	Number of Business Bankruptcies	Adm. Office of US Courts: Business Bankruptcy Filings
Bankruptcies, SMEs (growth rate)	Calculated	Calculated

References

American Bankruptcy Institute

https://www.abi.org/newsroom/bankruptcy-statistics

Board of Governors of the Federal Reserve System, Senior Loan Officer Opinion Survey on Bank Lending Practices

https://www.federalreserve.gov/data/sloos/sloos.htm

Board of Governors of the Federal Reserve System, Survey of Terms of Business Lending - E.2

https://www.federalreserve.gov/releases/e2/current/

Federal Deposit Insurance Corporation, Call Reports

www.fdic.gov

Federal Reserve Bank of Kansas City, Small Business Lending Survey

https://www.kansascityfed.org/research/indicatorsdata/smallbusinesslendingsurvey

National Federation of Independent Business (NFIB), Small Business Economic Trends.

https://www.nfib.com/surveys/small-business-economic-trends/

National Venture Capital Association

https://nvca.org/

Thomson Reuters, Thomson Reuters Indices, Paynet Small Business Lending index

http://thomsonreuters.com/products_services/financial/thomson_reuters_indices/indices/economic_indicators/

U.S. Congress, Small Business Act of 1953

https://www.sba.gov/sites/default/files/files/Small%20Business%20Act.pdf

U.S. Department of Commerce, Minority Business Development Agency, 2019 Annual Performance Report

(forthcoming January 2020)

U.S. Department of Commerce, US Census Bureau, County Business Patterns

https://www.census.gov/programs-surveys/cbp.html

U.S. Department of Commerce, US Census Bureau, Nonemployer Statistics

https://www.census.gov/programs-surveys/nonemployer-statistics.html

U.S. Department of Commerce, US Census Bureau, Profile of US Importer and Exporter Companies

https://www.census.gov/foreign-trade/Press-Release/edb/2016/index.html

U.S. Department of Commerce, US Census Bureau, Statistics of U.S. Businesses (SUSB)

https://www.census.gov/programs-surveys/susb.html

U.S. Department of Labor, Bureau of Labor Statistics, Business Employment Dynamics

https://www.bls.gov/bdm/

U.S. Small Business Administration (2009) SBA Size Standard Methodology

http://www.sba.gov/content/size-standards-methodology

U.S. Small Business Administration, Frequently Asked Questions

https://www.sba.gov/category/advocacy-navigation-structure/research-and-statistics

U.S. Small Business Administration, Quick Reference to SBA Loan Guarantee Programs

https://s3.amazonaws.com/mentoring.redesign/s3fs-public/SBA%20Loan%20Programs%20Chart%20Nov%202011.pdf

Notes

← 1.  The SBA has two different approaches for defining small firms. The first approach is to define any firm with less than 500 employees as “small.” This practice was first established by the Small Business Act of 1953. However, the same Act requires the SBA to establish a size standard that “should vary to account for differences among industries.” For further details see The U.S. Small Business Administration (2009) SBA Size Standard Methodology.

← 2.  See U.S. Bureau of Labor Statistics, Business Employment Dynamics, Table G <https://www.bls.gov/web/cewbd/table_g.txt >.

← 3.  The Paynet data track credit supplied to small firms by the largest 200 financial institutions, and may be overrepresented by finance companies.

← 4.  For further details on the SBA’s Capital Access Programs see www.sba.gov .

← 5.  The SBA provides a range of guarantees through its various guarantee products. For a quick reference on the details of its loan guarantee programmes see the U.S. Small Business Administration, Quick Reference to SBA Loan Guarantee Programs.