Young Firms Struggling in a Post-Recession Economy
The latest Kauffman Firm Survey is out and paints a gloomy picture of 2009 as it related to new firms – tighter restrictions on capital, slow sales, and increasing problems with customer payments. Not surprisingly, 89 percent of firms that were denied loans in 2009 felt that banks’ heightened requirements played a role in their denials. Twenty-one percent of surveyed firms had chosen not to apply for loans for fear of being declined, and 5 percent also refrained from seeking external equity financing for this reason.
As in 2008, young firms continued to cite slow and lost sales as their biggest challenge (44 percent), with unpredictable business conditions ranking second (22 percent). However, problems with customer payments were cited by 13 percent of firms – up from just 2 percent in 2008. Falling real estate values, inability to obtain credit, and the cost and/or terms or credit were less frequently cited.
About half of the young firms surveyed made new investments in their businesses through debt financing in 2009, and less than one-quarter made new equity investments – an 8 percent decline in equity investing from 2008. In addition, less than 8 percent of surveyed firms made financial injections of more than $100,000 in debt financing, compared with 10 percent in 2008.
The Kauffman Firm Survey examines how businesses are organized and operate in their early years – shedding light on survival and growth indicators. Its baseline study started with a cohort of 4,928 firms that began operations in 2004. Learn more about the KFS series.