Revenues Grow While Profits Flat For Over Half Of US SMBs

More than half of U.S. small businesses (SMBs) — 57 percent — reported revenue growth in 2018, although profits remained the same as in 2017, according to Forbes, citing the Small Business Credit Survey (SBCS).

The annual survey — a 2019 study that gives insights into small business performance in 2018 — polls companies with under 500 employees and is conducted by the 12 Federal Reserve Banks. It is intended to provide updated data on small business financing needs, decisions and outcomes. 

According to the survey, while revenues grew for most, the percentage of firms operating at a profit remained unchanged from the previous year’s report. When firms raised the prices they charged, those companies were two times as likely to show increased profits compared to firms that did not pass expenses on to customers. More than one third of firms reported that they added staff, which was most common at startups and firms with five or more employees.

More than half of small businesses that sought funding — 53 percent — did so because they experienced a financing shortfall. Forty-three percent of respondents reported needing small business financing for their companies, compared to 40 percent the previous year. The survey also found that financing shortfalls were experienced more often by unprofitable firms, companies with poor credit histories and businesses in urban areas.

SMBs in the U.S. represent 99.7 percent of private-sector employers in the U.S.

The 2008 financial crisis gave rise to the alternative lending market as a result of a massive gap in available capital, especially for small businesses and startups. The market’s creation was a spark that ignited a slew of disruptive changes for the small business financial services space.

Alternative finance, for instance, also filled the need for small business borrowers to obtain a faster, digital way to access capital. It encouraged banks to develop their own digital lending solutions and collaborate with their one-time rivals to step up the borrowing experience for SMBs.