The Financing Experiences of Nonemployer Firms: Evidence from the 2014 Joint Small Business Credit Survey

Businesses without employees—or nonemployer firms—make up the majority of small businesses in the United States, but little is known about their financial lives, including their business financing needs and experiences. In this paper, we discuss findings from data on non-employer firms in the 2014 Joint Small Business Credit Survey, a new annual survey by the Federal Reserve Banks of Atlanta, Cleveland, New York, and Philadelphia. Our results indicate that non-employers use financing less than employers do. They hold less debt and apply for financing at lower rates, even when controlling for revenue size. The lower demand for credit appears to be a combination of a preference to avoid debt and a perception that non-employers will be denied if they apply. Non-employer applicants have more difficulty being approved and are likelier to seek financing from online lenders than are employer firms. We believe that the higher denial rates that non-employers experience are at least partially explained by the differing attributes of the group. Non-employers are younger, likelier to cite their poor credit score as a reason for denial, and less likely to be turning a profit than are employer firms.