Highlights findings from longitudinal data on new businesses' performance since 2004 as well as new firms founded in 2009, including trends in customer payment problems and loan denials, financial injections, and sources of comparative advantage

Alicia M. Robb

E. J. Reedy

English

Alicia Robb

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SSRN Electronic Journal

An Overview of the Kauffman Firm Survey: Results from 2009 Business Activities

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March 2011Results from 2009 Business ActivitiesAn Overview of the Kauffman Firm SurveyPrepared By:Alicia Robb E.J. Reedy Kauffman Firm SurveyThe 20042005200620072008200920102011March 2011© 2011 by the Ewing Marion Kauffman Foundation. All rights reserved.Kauffman Firm SurveyThe 20042005200620072008200920102011Results from 2009 Business ActivitiesAn Overview of the  Kauffman Firm SurveyPrepared By:Alicia Robb E.J. Reedy A N  O V E R V I E W  O F  T H E  K A U F F M A N  F I R M  S U R V E Y :  R E S U L T S  F R O M  2 0 0 9  B U S I N E S S  A C T I V I T I E S 1Although entrepreneurial activity is an important part of a capitalist economy, data about U.S. businesses in their early years of operation have been extremely limited. As part of an effort to gather more information on new businesses in the United States, the Ewing Marion Kauffman Foundation created the Kauffman Firm Survey (KFS), a panel study of new businesses founded in 2004 and tracked over their early years of operation. The KFS dataset provides researchers with a unique opportunity to study a panel of new businesses from startup to sustainability, with longitudinal data centering on topics such as how businesses are financed; the products, services, and innovations these businesses possess and develop in their early years of existence; and the characteristics of those who own and operate them.1 This report highlights basic trends within the panel and some of the new questions that were added to the survey in 2009. Calendar year 2009 data on the firms’ sixth year of operations are now available online, in the NORC Data Enclave, and at the Census Bureau’s Research Data Centers.2 1. Questionnaires and other data documentation are available at www.kauffman.org/kfs/About-the-KFS.aspx.2. More information on all versions is available at www.kauffman.org/kfs/Data-Files.aspx.A N  O V E R V I E W  O F  T H E  K A U F F M A N  F I R M  S U R V E Y :  R E S U L T S  F R O M  2 0 0 9  B U S I N E S S  A C T I V I T I E S2Loan Denials Increase About a quarter of business owners who applied for new credit in 2009 said that their loan applications always were denied, a large increase over 2008. About 60 percent of firms who applied for credit in 2009 had their credit application(s) always approved, compared with 67 percent in 2008. For those who had some or all of their loan applications denied, multiple reasons often were indicated, but more than 90 percent of firms felt banks were putting tighter restrictions on the lending.3 More than 21 percent of firms said they didn’t apply for credit at some point when they needed it because they feared their loan application would be denied. This was up from less than 18 percent in 2008. About 5 percent of firms did not seek external equity financing (venture capital, angel financing) when they needed it because the feared their application would be denied.  Loan Application Outcome    Always approved           60% 68%    Sometimes approved      and sometimes denied         17% 17%    Always denied            23% 15% Reason for Loan Denial  (if denied)      Insufficient collateral       42% 42%    Loan too large            17% 28%    Inadequate documentation       5% 16%    Business credit history       35% 33%    Personal credit history       44% 45%    Business too new           14% 16%    Restrictions on lending       89% n/a    Other                3% 15% Did not apply for credit  when needed for fear   of denial        21% 18% Did not seek external equity   financing for fear of denial 5% n/aApplication and Borrowing Patterns (2008 and 2009)2009 2008Source: Kauffman Firm Survey Microdata 2008–2009Customer Payment Problems  Increasing Challenge As in 2008, the most challenging problem reported by businesses in 2009 continued to be slow/lost sales. Unpredictable business conditions ranked second. Problems with customer payments were cited by 13 percent of firms, up from just 2 percent in 2008. Falling real estate values, inability to obtain credit, and the cost and/or terms of credit were cited by less than 10 percent of firms.  Slow or lost sales 44% 53% The unpredictability   of business conditions 22% 24% Customers not making   payments/paying late 13% 2% Other 8% 10% Falling real estate values 7% 5% An inability to obtain credit 5% 4% The cost and/or terms   of credit 2% 2%Most Challenging Problem Faced by Business (2008 and 2009)2009 2008Source: Kauffman Firm Survey Microdata 2008–2009As in 2008, the most challenging problem reported by businesses in 2009 continued to be slow/ lost sales. Unpredictable business conditions ranked second. Problems with customer payments were cited by  13 percent of firms, up from  just 2 percent in 2008.3. This response category was added in 2009 and is not available for previous years.A N  O V E R V I E W  O F  T H E  K A U F F M A N  F I R M  S U R V E Y :  R E S U L T S  F R O M  2 0 0 9  B U S I N E S S  A C T I V I T I E S 3 Loan Requiring Collateral  16%    Accounts receivable          40%    Vehicle/Equipment           36%    Security deposit            19%    Intellectual property         3%    Business real estate          20%    Personal real estate          43%    Other personal assets         17%    Other                 5% Loan with an SBA guarantee  3%Collateral Requirements for Loans (2009)2009Source: Kauffman Firm Survey Microdata 2009 None 50% 74% 47% 66% $5,000 or less 14% 8% 14% 13% $5,001 to $25,000 16% 11% 16% 12% $25,001 to $100,000 13% 5% 14% 7% $100,001 or more 8% 2% 10% 2%Debt Equity DebtNew Financial Capital Investments in 2008 and 2009 (Surviving Firms)Equity2009 2008Source: Kauffman Firm Survey Microdata 2008–2009External Support on Business Loans  New in 2009, two sets of questions regarding external support of loans were asked of firms. First, all firms were asked if they had any loans that were backed by the Small Business Administration (3 percent). In addition, firms receiving new loans in 2009 were asked about collateral required by commercial lending organizations in order to receive funding. Only 16 percent of firms that received a new loan stated that collateral was required, with the most common collateral pledged being personal real estate (43 percent), followed by accounts receivable  (40 percent) and vehicles/equipment (36 percent). 2008 and 2009 Financial Injections Only about half of firms made new investments in their businesses from debt financing in 2009, and less than one-quarter of firms made new equity investments. While the percentage of firms investing through debt financing was similar to levels in 2008, there was a notable drop (eight percentage points) in firms investing through equity financing. Investment levels also dropped from 2008 to 2009. Less than 8 percent of firms made financial injections of more than $100,000 through debt financing in 2009, compared with 10 percent in 2008. Only about 7 percent made new financial injections of more than $25,000 from equity financing in 2009, compared with 9 percent  in 2008.Less than 8 percent of firms made financial injections of more than $100,000 through debt financing  in 2009, compared with 10 percent in 2008.A N  O V E R V I E W  O F  T H E  K A U F F M A N  F I R M  S U R V E Y :  R E S U L T S  F R O M  2 0 0 9  B U S I N E S S  A C T I V I T I E S4Survival Follows Expected Patterns The Kauffman Firm Survey tracks firms that began operations in 2004 and now covers the time period of the Financial Crisis. After six years of operation, the survival rate of the panel was at 56 percent, slightly above the historical average of U.S. employer firms of 50 percent, falling from 61 percent in 2008.4,5Investments in Future  Nearly half of firms had some spending on intangible assets, which are expenditures expected to produce long-term benefits for businesses, such as brand development and worker training. This was similar to the level in 2008. For those with some spending, the average spent was about $31,000, compared with $28,000 in 2008. About 13 percent of firms invested in research and development in 2009, similar to 2008 levels. However, investments averaged about $75,000 in 2009, up from about $54,000 in 2008.  Comparative Advantage         47% Reasons for Comparative Advantage     University partnership         6%    Company partnership          29%    Government lab partnership         2%    Patents                6%    Price                 52%    Marketing               45%    Speed                 57%    Reputation               80%    Cost                  49%    Design                 71%    Expertise               76%Comparative Advantage (2009)2009Source: Kauffman Firm Survey Microdata 2009Sources of Advantage Vary Widely  Surprisingly, even though the surveyed firms are now in the sixth year of operations, less than half believe they have a comparative advantage in the products and/or services they offer. In terms of partnerships, partnering with another company was the most common for providing a comparative advantage. Overall, the most common source of comparative advantage was reputation, with 80 percent of firms that thought they had a comparative advantage stating that this was one source for that comparative advantage.  4. http://www.sba.gov/advocacy/7495/8430.5. Due to the KFS survey methodology, some firms started and failed within the first year that our survey didn’t capture, pushing survival rates slightly higher than would be expected.Nearly half of firms had some spending on intangible assets, which are expenditures expected to produce long-term benefits for businesses, such as brand development and worker training.A N  O V E R V I E W  O F  T H E  K A U F F M A N  F I R M  S U R V E Y :  R E S U L T S  F R O M  2 0 0 9  B U S I N E S S  A C T I V I T I E SKauffman Firm SurveyThe 200420052006200720082009201020114801 ROCKHILL ROADKANSAS CITY, MISSOURI  64110816-932-1000 www.kauffman.org

An Overview of the Kauffman Firm Survey: Results From 2009 Business Activities

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An Overview of the Kauffman Firm Survey: Results From 2009 Business Activities

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