Report Released on Financing Experiences of Nonemployer Businesses

For immediate release: December 20, 2016

The Federal Reserve Banks of New York, Atlanta, Boston, Cleveland, Philadelphia, Richmond and St. Louis today issued the 2015 Small Business Credit Survey Report on Nonemployer Firms (Nonemployer Firms Report). This report, which is the second analysis of results from the 2015 Small Business Credit Survey (the Survey), examines business conditions and the credit environment of nonemployer firms—small businesses with no employees other than the business's owners. A report on the experiences of small employer firms was released earlier this year.

The Nonemployer Firms Report assesses feedback from 2015 and highlights the unique characteristics and economic experiences of nonemployer small businesses. Nonemployer businesses make up 23.8 million U.S. businesses and represent 80 percent of all U.S. businesses, according to the U.S. Census Bureau's most recent Nonemployer Statistics and Survey of Business Owners, respectively. Findings from the Nonemployer Firms Report raise many new questions about nonemployer businesses, which will be the subject of future research.

"Nonemployer firms represent the vast majority of small businesses, and today's report reveals that a notable portion were not profitable, elected to hire contractors instead of employees, faced financial shortfalls and relied on online lenders," said Claire Kramer Mills, assistant vice president in Outreach and Education at the New York Fed. "This insight helps us to understand the unique challenges of these firms—which is essential to informing policymakers. The results raise an important question about why many of these businesses decide not to hire employees despite appearing to need the support."

Key findings can be found in the Nonemployer Firms Report's executive summary. These findings include:


  • Sixty-four percent of nonemployer firms provided the primary source of income for their owners. Their top business challenges were generating sales and managing cash flow.
  • Overall, only 35 percent of nonemployer firms were profitable. This differed significantly from employer small businesses where 55 percent were profitable.
    • When segmented by revenue size, the profitability of nonemployer firms varied significantly: only 14 percent of nonemployer firms with less than $25,000 in annual revenue were profitable, while 58 percent of nonemployer firms with more than $100,000 in annual revenue were profitable.

Contract Workers

  • 32 percent of nonemployer firms hired contractors during the previous year, and those with higher annual revenue were more likely to do so.
    • In fact, 49 percent of nonemployer firms with more than $100,000 in annual revenue hired contractors during the previous year.
    • For nonemployer firms with more than $100,000 in annual revenue, their decision to hire contractors instead of employees is especially notable, considering that 58 percent of them were profitable.


  • 40 percent of nonemployer firms had outstanding debt, compared to 63 percent of small employer businesses.
    • While fewer nonemployer firms had outstanding debt than small employer firms, this is still a very sizable portion of nonemployer firms, especially considering the fact that they did not have employees and 44 percent of them relied on personal funds as their primary income source.
  • Only 32 percent of nonemployer firms applied for financing, compared to 47 percent of small employer firms.
    • Of the nonemployer firms that did apply for financing, only 29 percent were approved for the full amount of financing, compared to 50 percent for small employer firms.
    • Of those that were not approved for credit, low credit scores and insufficient collateral were cited as the primary reasons.
  • While most nonemployer firms that applied for financing went to banks, a noteworthy 28 percent sought credit with online lenders. This differed from employer small businesses where 20 percent applied with online lenders.
    • Small banks received the highest satisfaction scores among nonemployer firms with a 38 percent satisfaction score, while online lenders received a 12 percent satisfaction score. For small employer firms, these numbers were 75 percent and 15 percent, respectively.

About the Small Business Credit Survey (The Survey)

The Survey collects information about business performance, financing needs and choices, and borrowing experiences of firms with fewer than 500 employees, including firms without employees other than the owners. Responses to the Survey provide insight into the dynamics behind aggregate lending trends and about noteworthy segments of small businesses. The results are weighted to reflect the full population of small businesses in the states of coverage. The Survey is not a random sample; therefore, results should be analyzed with awareness of potential methodological biases.

The Survey was launched in 2014 through an effort that merged the regional surveys conducted by several Federal Reserve Banks. The 2015 Survey collected 5,420 responses in total across 26 states—1,576 of which were from nonemployer firms.

The 2015 Small Business Credit Survey Report on Employer Firms is available here.

Contact: Jean Tate 404-498-8035