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Startup survey reveals faster growth, higher risk

August 17, 2017

The Federal Reserve Bank of New York reported that startup firms (small businesses that were five-years-old or younger and had full- or part-time employees in 2016) were twice as likely to be adding jobs and growing revenues but more likely to be higher credit risk than mature firms. The 2016 Small Business Credit Survey: Report on Startup Firms provides an in-depth look at the financing and credit experiences of the startups. The report notes that startups account for 34 percent of all small employer firms and “play an outsized role in U.S. innovation and productivity.” Despite their role in innovation and job creation, the rate of startup creation has been decreasing for years and the rate of failure for those that do launch is high, the report states. Noting that access to capital is critical for startups, the report offers a detailed look at startups financing needs and challenges.

Overall the survey finds that startup firms have stronger growth and optimism than mature small firms, with 43 percent of startups adding jobs and growing revenues (compared to 22 percent of mature firms) and 70 percent seeking funding for expansion (compared to 60 percent of mature firms). Yet only 32 percent of 0-2 year old firms and 49 percent of 3-5 year old firms report being profitable (compared to 60 percent of mature firms) and 44 percent of the startups surveyed self-identified as medium and high credit risk.

The report also details that startups have strong demand for financing (52 percent applied for financing in 2016) although they have smaller financing needs (63 percent of startup applicants sought $100,000 or less in financing) than mature firms and face more financing challenges than mature firms (58 percent of 0-2 year old firms and 53 percent of 3-5 year old firms reported difficulty with credit availability or accessing funds for expansion, compared to 39 percent of mature firms). Additionally, 69 percent of startup applicants experienced a financing shortfall, meaning they obtained less than the amount they sought, compared to 54 percent of mature applicants.

 

Interested in learning more? SSTI’s 2017 Annual Conference taking place Sept. 13 – 15 in Washington, D.C., will have several sessions focused on topics such as capital, innovation, and connecting small- and medium-sized businesses that will be of interest to startups, including: Launching Funds In Under-Capitalized Regions, Insights on the Federal Capital & Entrepreneurship Portfolio, and Fostering Company Connections. Register today before rates increase on Aug. 23!

 

startups, capital, conference