A recent blog post from the Federal Reserve Bank of Atlanta discusses the struggle for many young firms to secure financing, and highlights the sources that are proving to be most successful. According to the Atlanta Fed’s survey of small businesses, obtaining financing is difficult but not impossible for new businesses.
According to the survey, mature firms (older than five years) were much more likely to apply for and receive commercial loans and lines of credit. Meanwhile, young firms (less than five years old) had as many approved applications for credit cards or financing from family and friends as they did for bank credit.
Of course, having a short track record is one reason that young firms are less likely to be approved for bank credit. Another reason is that new businesses tend to ask for relatively smaller amounts of money. Many banks decide that it simply isn’t worth their effort.
So, what sources of financing were most successful for young companies, and what sources might be important in the future?
According to the Atlanta Fed’s survey, financing from family or friends was the most successful. However, it is not highly used, probably because there can only be so many friends and family members to ask. But with this in mind, sources like crowdfunding could hold a great deal of potential for young firms.
To read the full blog from the Atlanta Fed, please click here.