The substantial growth in the number of small businesses over the past decade has increased the demand for debt and equity capital by small business owners. These businesses account for about 50 percent of private-sector output and employ more than half of private-sector workers over the past decade. Given small businesses’ significant role in innovation and economic growth, an understanding of trends in the types and sources of financing they use is important for policymaking, primarily because small businesses typically finance their businesses differently than larger businesses. In a comparison of the earlier Surveys of Small Business Finances (SSBF) conducted by the Federal Reserve with the latest SSBF (2003), Mach and Wolken (2006) suggest that non-depository institutions have become more important to small business owners:
The incidence of credit lines and vehicle loans has increased, whereas the incidence of capital leases declined somewhat. Since the 1987 survey, small businesses have increasingly used non-depository institutions to obtain some of their financial services. However, despite the growth in the use of non-depository sources—from 25 percent of firms in 1987 to 54 percent in 2003—commercial banks remained the dominant supplier of most financial services. (Page 187)
This study will describe financing patterns of small businesses in 2003 and examine the changes in financing patterns of small business borrowers over the past decade (1993–2003). In addition, the analysis of changes in financing patterns will examine the impact (if any) that the rise of non-traditional, non-commercial lending has had on the importance of internal finance for small firm growth.
Available at: http://works.bepress.com/james-brown/3/