Last month, four researchers (and business/finance professors from the University of Texas, the University of California, Los Angeles and New York University) published a study titled, “How Much Does Credit Matter for Small Business Success in the United States?”
The answer? A lot.
The study found that small business loans are critical to a startup’s success. These study results were not a surprise and they are consistent with lots of other market data that’s been talked about for a long time. When properly acquired and properly utilized, small business financing helps businesses grow.
A Closer Look at the Small Business Loans Study
The group reviewed five years’ of startup loan applications from Accion Texas, a lender providing capital to startups across the country. (Startup is defined as a new business, open 6 months or less and the majority of applications were for retail and restaurant businesses.) The study found that:
“Startups receiving funding are dramatically more likely to survive, enjoy higher revenues and create more jobs.”
Other key findings include:
- Receiving even a relatively small loan ($15,000 for example) had a largely positive effect on the subsequent financial position of businesses in securing future financing.
- Effect of receiving a loan is larger for educated entrepreneurs.
- Receiving a loan has a much larger impact on survival for entrepreneurs without prior senior managerial experience.
- Significant demand remains for early-stage funding for small businesses.
The study illustrates the importance of access to credit and is another reminder that borrowing capital, when done correctly, can be critical for business success.
Small business financing is like a lot of other things. It’s a tool that can be used wisely for great things. It can also be used poorly, in which case it will not help your business grow.