In case you were wondering about how it comes about that those small firms that are “younger, smaller, less profitable, less liquid, and less credit worthy” are the ones opting for debt financing, you should know that the research in question used the Federal Reserve’s Survey of Small Business Finance for their data set. And that particular survey does not make any distinction between credit card debt and more traditional term loan financing.

Just thought I should clear that up.

The thing is, larger firms with higher annual sales and more assets tend to eschew debt financing in favor of retained earnings re-invested in the business, i.e., internal financing. I’m sure those younger firms would do the same thing if they had the spare earnings to work with. Microbusiness owners, especially, prefer to avoid causing their firms to become awash in debt, sometimes even at the expense of growing their revenues.

For more information:

SBA Office of Advocacy
Hearing Archive: Pending Nomination: Honorable Steven Preston, Secretary-Designate, Department of Housing and Urban Development
SBA HUBZone Program

[tags]research, access to capital, financing, SBA, Steven Preston, Department of Housing and Urban Development, HUBZone, federal procurement, microbusiness[/tags]

 

 Small Firms Avoid Debt When They Can [7:44m]: Play Now | Play in Popup