The Small Business Credit Survey (SBCS), a collaboration among all 12 Federal Reserve Banks, is a survey of small businesses conducted annually providing timely information about small business conditions to policymakers and service providers. The 2023 SBCS is open now through November 16, and welcomes all small businesses to participate by taking the survey here.
To amplify annual survey captures, this Partners Update looks at results from the Fall 2022 survey. The 2022 survey marks the third year of findings on small employer firms following the economic turbulence that occurred in the wake of the pandemic.1 Over three survey cycles, the SBCS has provided annual insights on the outstanding challenges that small businesses across the US have experienced following the pandemic and, this year, ongoing firm conditions in the economy. While firm conditions have steadily improved as the broader economy has rebounded, small businesses have found themselves navigating the conclusion of pandemic-era financial assistance, rising inflation, and increasing interest rates. Altogether, small businesses find themselves in an economic environment filled with uncertainty, just two years after the COVID-19 economic downturn.
Because small businesses are a critical part of creating an inclusive economy for all, understanding their current and anticipated performance remains a key priority of the Federal Reserve Bank of Atlanta’s Community and Economic Development team. Small businesses provide goods and services to their local neighborhoods2 and are an important driver of economic growth and resilience, contributing about 44 percent to US GDP overall.3 Moreover, according to the US Small Business Administration, small businesses account for 99.9 percent of all businesses and employ 46.8 percent of the nation’s workers.4 Small businesses have also accounted for 66 percent of employment growth nationwide over the last 25 years.5 Through SBCS findings, the Federal Reserve Bank of Atlanta can discuss regional- and state-level trends for this critical part of the overall economy.
The following analysis examines state-level data from the SBCS focusing on the Federal Reserve System’s Sixth District—Alabama, Florida, Georgia, Louisiana, and Tennessee—relating to a selection of questions derived from the 2023 Report on Employer Firms.6 Small businesses with fewer than 500 employees are included in the analysis, having provided responses on performance, financial conditions, financing, and other operational challenges which illustrate the current condition of these firms. The results show notable differences between these southeastern states and the nation overall, specifically in terms of small business performance, pandemic recovery, and firm expectations for revenue over the next 12 months.7 Some key takeaways include:
- Southeastern firms experienced similar trends relating to revenue and employment change in the 12 months preceding the survey period compared to firms nationwide. However, firms in Tennessee were more likely to report increases for both indicators, while Alabama firms were more likely to report decreases for revenue change, and Georgia firms reportedly experiencing higher rates of decreases for employment change, relative to the Southeast and the United States overall.
- Southeastern firms and firms across the United States were most likely to report that meeting operating costs was the most common reason for seeking lines of credit, followed by wanting to expand their businesses, pursuing new opportunities, or acquiring business assets.
- Over a quarter of firms in Alabama, Florida, Georgia, Tennessee, and the United States overall reported credit availability as a major financial challenge.
- Firms in the Southeast were more likely to expect an increase in revenue in the 12 months after the survey compared to US small businesses overall. Firms in Louisiana and Tennessee were the most likely groups to report that they expected their revenue to increase.
- However, when observing firm expectations for employment in the 12 months following the survey, most southeastern states, apart from Tennessee, aligned with the rest of the United States, reporting that they expected either no change or an increase in employment at their small business.
Small business performance and challenges in the Southeast
Firm-Level Revenue Change
Continuing a trend from the 2021 SBCS Report on Employer Firms, in this year’s survey a growing number of small employer firms reported their revenues had increased from the previous year. Forty-four percent of small businesses across the United States and the Southeast alike experienced increased revenues in 2022 (see figure 1). Firms located in Florida, Georgia, Alabama, and Louisiana reported revenue change in line with national patterns. However, there were two notable outliers: Alabama and Tennessee. Unlike the rest of the country, 57 percent of Tennessee small businesses reported experiencing increases in revenue, thus exceeding the national trendline, while 45 percent of Alabama firms reporting decreased revenues, thus failing to reach the national trendline, compared to their southern and national peers.
Figure 1: Revenue Change Experienced by Small Businesses in the Southeast, Prior 12 Months
Source: 2022 Small Business Credit Survey, Federal Reserve Banks
Firm-Level Employment Change
When looking at firm-level employment change over the 12-month period leading up to the survey, trends for southeastern firms resemble those of the United States as a whole, shown in figure 2. Small businesses located in Alabama, Florida, Louisiana, and Tennessee, were more likely to report increases in employment than decreases at the firm level. Notably, Georgia firms were equally as likely to experience decreases as those that experienced increases, while half of Tennessee firms (50 percent) reported employment increases in leading up to the 2022 survey.
Figure 2: Employment Change Experienced by Small Businesses in the Southeast, Prior 12 Months
Source: 2022 Small Business Credit Survey, Federal Reserve Banks
Financial Challenges
In the last year, a large majority of firms across the United States reported that they experienced a financial challenge of some sort (see figure 3). This trend held for firms across the Southeast, where 94 percent of firms reportedly experienced financial challenges. Moreover, Alabama firms were the most likely group to report experiencing a financial challenge (98 percent) compared to firms in other southeastern states.
When considering the most frequent financial challenges, southeastern firms did not vary widely from other US firms. The rising costs of goods and services was the most common financial challenge cited across the United States (81 percent of firms). In the Southeast, small businesses in Alabama, Georgia, and Tennessee felt this challenge more acutely—at 87, 85, and 86 percent respectively. Nationally, 54 percent of small businesses identified paying operating expenses and uneven cash flows as financial challenges. Difficulties paying operating expenses were relatively consistent, ranging from 51 percent in Georgia to 54 percent in Florida and Louisiana. The share of businesses across the Southeast experiencing uneven cash flows is slightly less than that of firms nationally (51 percent compared to 54 percent), with Tennessee being a notable outlier—only 43 percent of its firms reporting uneven cash flows.
Figure 3: Financial Challenges Reported by Small Businesses in the Southeast, Prior 12 Months
Source: 2022 Small Business Credit Survey, Federal Reserve Banks
Operational Challenges
Beyond financial challenges, operational hurdles remain a significant barrier to success for small businesses. Operational challenges include complying with regulations, ensuring safety of customers and employees, and the most frequently cited challenge of hiring and retaining qualified staff. Figure 4 shows that 60 percent of small businesses nationwide and 61 percent of southeastern small businesses reported hiring or retaining qualified staff as a major operational challenge. Within the Southeast the share of businesses experiencing challenges in hiring and retaining staff varied, with firms in Louisiana and Tennessee reporting the largest shares compared to other southeastern states (68 and 71 percent, respectively).
Figure 4: Operational Challenges Small Businesses Experienced in the Southeast, Prior 12 Months
Source: 2022 Small Business Credit Survey, Federal Reserve Banks
Financing
After the conclusion of pandemic-era business financing programs, the SBCS shows an accompanying rise in application rates for traditional financing for the first time since 2020.8 The increase in applications for traditional financing indicate that firms remain interested in seeking capital to expand their businesses, pursue new opportunities, acquire business assets, and meet their operating expenses. Below we discuss the extent to which small businesses have sought traditional lines of credit and their reported reasoning for that decision.
Applications for Nonemergency Financing
In 2022, 40 percent of firms in the United States applied for financing in the 12 months prior to the survey, compared to 44 percent of firms across the Southeast (figure 5). There is also considerable variation in application rates between southeastern states, with only 39 percent of Louisiana firms applying for financing, compared to 55 percent of Alabama firms.
Figure 5: Share of Small Businesses in the Southeast that Applied for a Loan, Line of Credit, or Merchant Cash Advance
Source: 2022 Small Business Credit Survey, Federal Reserve Banks
Reasons for Seeking Financing
For the second year in a row, meeting operational expenses is the number one reason firms applied for financing in the 12 months prior to the survey, followed by wanting to expand the business. Figure 6 shows that 65 percent of US firms sought financing to meet operating expenses, relative to the 64 percent of firms in the Southeast. In contrast, a much larger proportion of small businesses in Louisiana (75 percent) applied for financing to meet operating expenses, while firms in Alabama were the smallest group that reported seeking financing for operating expenses (61 percent).
Figure 6: Reasons for Seeking Financing Among Small Businesses in the Southeast, Prior 12 Months
Source: 2022 Small Business Credit Survey, Federal Reserve Banks
Loan Sources
Throughout the Southeast, small businesses sought financing from a range of financial services providers: large banks, defined as institutions with at least $10 billion in total deposits; small banks, defined as institutions with less than $10 billion in total deposits; online lenders; finance companies; credit unions; and CDFIs (seen in figure 7). Large banks were the most common type of financial institution US small firms applied to for financing (43 percent). Southeastern small businesses largely followed national patterns when applying for financing overall. However, Alabama firms reported a higher rate of small bank applications (35 percent compared to 30 percent nationally), while Florida firms were more likely to apply for financing with online lenders (29 percent compared to 22 percent nationally).
Figure 7: Commonly Cited Funding Sources Among Southeastern Small Businesses, Prior 12 Months
Source: 2022 Small Business Credit Survey, Federal Reserve Banks
Expectations and Economic outlook
Revenue Expectations
At the time of the 2022 survey, 56 percent of firms across the United States expected revenues to increase, while 21 percent expected a decrease in revenues over the following 12 months (seen in figure 8). A larger share of Alabama firms anticipated that their revenues would decrease (25 percent) compared to the national and southeastern share of firms (21 percent for both groups). Moreover, Alabama firms were the least likely group to report an expectation of increased revenue in the next 12 months (50 percent) compared to all other groups. Meanwhile, Louisiana (61 percent) and Tennessee (61 percent) firms reported a greater degree of optimism regarding future revenue than all other states, and the national and southeastern averages (56 percent and 58 percent, respectively).
Figure 8: Small Business Revenue Expectations in the Southeast, Next 12 Months
Source: 2022 Small Business Credit Survey, Federal Reserve Banks
Employment Expectations
Across the Southeast and the United States overall, firms were generally more likely to report that they expected no change in employment over the 12 months following the survey (figure 9). Overall, 50 percent of US small businesses expected to see no change in the employment at their firm, which was a relatively consistent trend across the Southeast. Tennessee firms were the least likely group to report that they expected no change in employment (32 percent). Moreover, Tennessee firms were more likely to report that they expected either an increase (46 percent) or a decrease (21 percent) in employment relative to firms at the state, regional, and national levels. Notably, the share of Tennessee firms that expected decreases in employment is nearly double the rate of national firms.
Figure 9: Small Business Employment Expectations in the Southeast, Next 12 Months
Source: 2022 Small Business Credit Survey, Federal Reserve Banks
Conclusion
Although the pandemic created an unprecedented shock to business operations, the overall financial performance of small businesses has considerably improved since 2020. Most firms surveyed, however, have yet to perform at pre-pandemic levels. To achieve a thriving economy, it is important to note trends and analyze variation across regional and local economies, so that the systems that support small businesses can be improved and bolstered to maximize full economic participation of these critical entities.
Make Your Voice Heard
The Small Business Credit Survey is a platform to share small business stories. It is designed to track business conditions and bring them to the attention of service providers, lenders, and policymakers. Join the thousands of small businesses that take the Federal Reserve Banks’ SBCS to share information on the current business climate and firms’ financing needs and credit experiences. Take the survey today!
By Mary Hirt, CED policy specialist, Aaliyah Price, CED analyst, Alvaro Sanchez, CED senior analyst, and Anthony Tringali, former CED intern. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.
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1 Whenever we refer to firms, small firms, or small businesses here, we refer to businesses with fewer than 500 employees.
2 Elissa Sangalli Hillary and Dan Houston, "Examining the Impact of Local Business on the West Michigan Economy" (Independent We Stand, September 2008), https://www.independentwestand.org/wp-content/uploads/GR_Local_Works_Complete.pdf.
3 Kathryn Kobe and Richard Schwinn, "Small Business GDP, 1998–2014" (Small Business Administration Office of Advocacy, December 2018), https://advocacy.sba.gov/wp-content/uploads/2018/12/Small-Business-GDP-1998-2014.pdf.
4 "2021 Small Business Profiles for the States, the District of Columbia, and the US" (Small Business Administration Office of Advocacy, August 2021), https://advocacy.sba.gov/2021/08/30/2021-small-business-profiles-for-the-states-the-district-of-columbia-and-the-u-s/.
5 Daniel Wilmoth, "Small Business Facts: Small Business Job Creation" (Small Business Administration Office of Advocacy, April 2022), https://advocacy.sba.gov/wp-content/uploads/2022/04/Small-Business-Job-Creation-Fact-Sheet-Apr2022.pdf.
6 Due to an insufficient number of survey responses we cannot share results for Mississippi, which is part of the Federal Reserve Bank of Atlanta's Sixth District. The survey findings presented here, therefore, include weighted responses from 251 employer firms in Alabama, 566 in Florida, 305 in Georgia, 192 in Louisiana, and 119 in Tennessee. For more information, see the methodology section in the 2023 Report on Employer Firms.
7 The term Southeast refers to the combined responses of Alabama, Georgia, Florida, Louisiana, Mississippi, and Tennessee which comprise the six states within the Federal Reserve Bank of Atlanta’s Sixth District.
8 "2023 Report on Employer Firms" (Federal Reserve Banks, March 2023), https://www.fedsmallbusiness.org/survey/2023/report-on-employer-firms.