www.sba.gov/advocacy

Office of Advocacy

Annual Report of the

Office of Economic Research

FY 2011

December 2011
Created by Congress in 1976, the Office of Advocacy of the U.S. Small Business

Administration (SBA) is an independent voice for small business within the federal

government. Appointed by the President and confirmed by the U.S. Senate,

the Chief Counsel for Advocacy directs the office. The Chief Counsel advances

the views, concerns, and interests of small business before Congress, the White

House, federal agencies, federal courts, and state policy makers. Economic

research, policy analyses, and small business outreach help identify issues of

concern. Regional Advocates and an office in Washington, D.C., support the Chief

Counsel’s efforts.

For more information on the Office of Advocacy, visit www.sba.gov/advocacy or call

(202) 205-6533. Receive email notices of new Office of Advocacy information

by signing up on Advocacy’s Listservs at http://web.sba.gov/list.

þ ADVOCACY NEWSLETTER

þ ADVOCACY PRESS

þ ADVOCACY REGULATORY NEWS

þ ADVOCACY RESEARCH

Cover illustration from Thinkstock.com
i Annual Report of the Office of Economic Research, FY 2011

Foreword

We are pleased to provide this FY 2011 annual report for the Office of Advocacy’s 

Office of Economic Research (OER). The Office of Advocacy continues to stress the 

importance of sound economic research that will provide our small business stakeholders with timely and actionable information about the current economic climate. 

The legislation that authorized the Small Business Administration’s Office of 

Advocacy, Public Law 94-305, highlighted economic research as a core mission of 

the office. The law assigned to Advocacy the task of examining “the role of small 

business in the American economy and the contribution which small business can 

make in improving competition.” 

With the recession and financial meltdown that began in 2007 and the ongoing 

challenge small businesses face in raising needed capital, Advocacy’s Office of Economic Research in fiscal year 2011 decided to take a hard, in-depth look at the state 

of the economy, small business job creation, and small business access to financing. 

In fiscal year 2011, beginning October 1, 2010, our Office of Economic Research 

produced 25 separate contract and internal research reports about topics ranging 

from small business innovation and job creation to the demographics of business 

ownership, health care costs, and tax burdens.

In addition to these reports, Advocacy convened research conferences in FY 

2011 on job creation and access to capital. These outreach efforts are important for 

small business stakeholders here in Washington. It is also important—always, and 

especially in the current economic climate—to hear from the small business community outside of Washington, D.C. 

We appreciate our stakeholders’ contributions in support of the best possible research on small business and we look forward to hearing from you in the year ahead. 

For more information about the Office of Advocacy, visit our website at www.sba.

gov/advocacy.

Winslow Sargeant, Ph.D. Joseph M. Johnson, Ph.D.

Chief Counsel for Advocacy Director, Office of Economic Research
iii Annual Report of the Office of Economic Research, FY 2011

Contents

Foreword i

Introduction 1

Advocacy Research Reports, FY 2011 3

Research Conferences 11

High-impact Entrepreneurship Outlook: Finance and Innovation Create Jobs 11

Small Business Capital Crunch: Debt and Equity 11

Data Access 13

Differences Between Static and Dynamic Data 13

Statistics of U.S. Businesses 14

Business Dynamics Statistics 15

Business Employment Dynamics 16

Nonemployer Statistics 16

Appendix A: Research Functions 17

Appendix B: Frequently Asked Questions 19

Appendix C: Frequently Asked Questions about Small Business Finance 21
1 Annual Report of the Office of Economic Research, FY 2011

Introduction

In fiscal year 2011, the Office of Advocacy continued to offer timely research on a variety 

of small business topics, from capital formation to the demographics of small business 

ownership. However, given the state of the economy and the importance of the small 

business role in it, two topics emerged as the most pressing areas for a research focus: financing and small business job creation. 

Advocacy’s research has long shown the importance of small businesses in creating 

new jobs. Research reports in many formats, including the Frequently Asked Questions

(FAQ), have documented the fact that small firms created some two-thirds of all the net 

new jobs beginning in the early 1990s. By the end of the first decade of the 21st century, 

it was clear that small business job creation was lagging, and it appeared that lack of access to financing was an important part of the problem. 

In response to the pressing need for new and timely information on these topics, 

Advocacy’s Office of Economic Research (OER) began several initiatives in FY 2011. 

OER’s research offers help for small business stakeholders in several forms: research 

produced by contractors with special expertise in particular databases or subject areas, 

in-house research by Advocacy’s team of economists, and the provision of data on small 

businesses and their role in the economy available via Advocacy’s website. 

In FY 2011, Advocacy began an effort to make its research products more readerfriendly and electronically accessible. The Frequently Asked Questions document was updated. Quarterly Indicators: The Economy and Small Business became a newly formatted 

and updated Small Business Quarterly Bulletin. With a specific focus on small business 

financing, two new recurring publications were added: Frequently Asked Questions about 

Finance and a second quarterly report, the Quarterly Lending Bulletin. The new publications have been well received and widely read by Advocacy stakeholders.

The Office of Advocacy partners with the U.S. Census Bureau to collect and report 

important data on small business. Advocacy economists process and analyze the data to 

produce easy-to-understand statistical tables and reports downloadable from Advocacy’s 

website. Data on businesses with employees and associated business characteristics are 

from the Statistics of U.S. Businesses, Business Dynamics Statistics, and Business Employment Dynamics. Data on nonemployers are from the Nonemployer Statistics program. The data programs are administered by the U.S. Census Bureau, except the Business Employment Dynamics data series from the U.S. Bureau of Labor Statistics.

Beyond research products, the Office of Advocacy convened two national conferences 

in fiscal year 2011 to reach out to small business stakeholders for both input on these topics and dissemination of research results. Shortly after a FY 2010 conference on the Regulatory Flexibility Act, Advocacy sponsored its first FY 2011 conference, “High-Impact 

Entrepreneurship Outlook: Finance and Innovation Create Jobs.” Late in the fiscal year, 

on September 15, 2011, Advocacy revisited the need for both debt and equity financing 

and proposed solutions in a symposium, “The Small Business Capital Crunch: Debt and 
2 Annual Report of the Office of Economic Research, FY 2011

Equity.” In addition to these Washington-based symposia, a series of regional roundtables 

during the fiscal year looked at women-owned small business contributions to the economy. The Chief Counsel also participated in a number of roundtables highlighting Advocacy research, as well as the office’s role in regulatory flexibility. 

In a variety of ways, Advocacy’s Office of Economic Research in FY 2011 continued 

to advance the mission of providing small business research that is timely and relevant 

for use by the many stakeholders interested in small business contributions to the U.S. 

economy.
3 Annual Report of the Office of Economic Research, FY 2011

Advocacy Research 

Reports, FY 2011

In FY 2011, Advocacy’s Office of Economic Research produced 25 reports on topics 

ranging from federal tax compliance burdens to entrepreneurship among veterans and 

women. This section lists OER’s FY 2011 research reports by release date, beginning 

with the latest. Visit the Office of Advocacy website for research reports available online: 

http://www.sba.gov/advocacy/7540/. 

•	 Developments in Women-owned Businesses, 1997-2007

http://www.sba.gov/advocacy/7540/26381

Release date: September 29, 2011 

Author: Dr. Ying Lowrey

Based on data from the Survey of Business Owners, this study looks at how women 

and other small business owners fared during the ten-year period, 1997-2007. The 

study finds that 12 percent of women business owners had employees in 2007, while 

88 percent did not. Women-owned firms employed 6.4 percent of the 118.6 million 

employees of employer firms in 2007. The top four sectors for employer firms owned 

by women were retail trade, professional services, health care and social assistance 

and accommodations.

•	 Regional Roundtables Focused on Women-owned Business

http://www.sba.gov/sites/default/files/Womens_roundtable_summary.pdf 

Release date: September 29, 2011

Author: Office of Advocacy

The Office of Advocacy released a summary of the results of roundtables held in 

the last week of June 2011 in each of the ten SBA regions. The events, convened by 

Advocacy’s Regional Advocates, brought together women from all walks of life to 

discuss the challenges women-owned businesses face, as well as their successes. The 

roundtables were held in Maine, New York, Pennsylvania, Georgia, Wisconsin, Louisiana, Iowa, Colorado, California, and the state of Washington. Participants included 

women business owners and various leaders of women’s organizations, as well as 

government employees. 

•	 The Increasing Importance of Credit Unions in Small Business Financing

http://www.sba.gov/advocacy/7540/23691

Release date: September 14, 2011

Author: James A. Wilcox

The study examines annual state-level data and national aggregate data for banks and 

credit unions from 1986 to 2010 and finds that, even during the financial crisis, credit 

unions may have provided some extra business lending in response to reductions in 

business lending by banks.
4 Annual Report of the Office of Economic Research, FY 2011

•	 Bank Liquidity Pressures and the Availability of Bank Credit to Small Firms: Was

the 2007-2009 Credit Crisis Different?

http://www.sba.gov/advocacy/7540/23701

Release date: September 14, 2011

Author: Joe Peek

With respect to the availability of bank credit to small firms, the study finds that the 

liquidity of bank assets became an important factor in the financial crisis, as healthier 

banks tended to shy away from small commercial and industrial and small commercial real estate loans.

•	 Measuring and Modeling the Federal Income Tax Compliance Burden of Small

Businesses

http://www.sba.gov/advocacy/7544/24761

Release date: September 13, 2011

Author: Quantria Strategies 

This study on the federal tax compliance burden for small firms found that the burden 

of complying with federal income tax requirements is of particular concern to American small businesses. Compliance burdens increase as the size of a small business 

increases and vary by industry and other factors, the study shows.

•	 Frequently Asked Questions about Small Business Finance

http://www.sba.gov/advocacy/9601

Release date: September 8, 2011

Author: Victoria Williams

Advocacy’s new Finance FAQ explores questions of how small businesses are financed in a useful, concise format. The Finance FAQ looks at both the debt and 

equity aspects of the small business balance sheet. Small businesses borrow for four 

principal reasons: starting a business, purchasing inventory, expanding, and strengthening the firm’s financials. The Finance FAQ is replete with data about where small 

businesses obtain their financing, including 15 graphs showing types of startup and 

expansion financing, as well as trends in bank lending, interest rates, venture capital, 

initial public offerings, SBIC funding, and SBA loans.

•	 Health Insurance in the Small Business Market: Availability, Coverage, and the Effect of Tax Incentives

http://www.sba.gov/advocacy/7540/22181

Release date: September 2, 2011

Author: Quantria Strategies

Advocacy published significant new research on the availability and coverage of 

health insurance in the small business market. The researchers examined whether 

existing tax incentives at the state and federal levels provide sufficient inducement to 

small businesses to adopt health insurance plans. They found no correlation between 

state tax rates and state insurance offer rates by size of firm. They also found that approximately 2.6 million of the 4 million firms estimated to be eligible for the health 

insurance tax credit in the 2010 federal legislation would have received a benefit from 

the credit in 2010.
5 Annual Report of the Office of Economic Research, FY 2011

•	 Small Business Quarterly Bulletin, Second Quarter 2011

http://www.sba.gov/advocacy/7540/15150

Release date: August 2011

Author: Brian Headd

Advocacy’s Small Business Quarterly Bulletin for the second quarter of 2011 contains commentary and analysis on the current employment and financing trends of 

small businesses, and shows a continuing but uneven climb for small businesses in 

second quarter 2011 from the depths of the recession. Small business demand for 

loans increased in both of the first two quarters and the number of startups is increasing.

•	 Accelerating Job Creation in America: The Promise of High-Impact Companies

http://www.sba.gov/advocacy/7540/17211 

Release date: July 2011

Author: Spencer Tracy

This report explores the contributions of high-impact companies to job creation. 

A previous Advocacy-funded study from Corporate Research Board, High-Impact 

Firms: Gazelles Revisited, found that fast-growing or high-impact companies were a 

main contributor to new jobs. In light of the current need for a growing labor market, 

a natural question is how the deteriorating economy of 2008 affected high-impact 

companies and their jobs. This study picks up where the previous one left off and addresses such additional questions as the gender of the owners and the financial condition of high-impact companies.

•	 Quarterly Lending Bulletin / Small Business Lending: First Quarter 2011

http://www.sba.gov/sites/default/files/files/SBL_2011Q1.pdf 

Release date: June 2011

Author: Victoria Williams

Advocacy’s Quarterly Lending Bulletin presented a brief analysis of the current small 

business lending situation and showed a drop in loans outstanding to small businesses 

during the first quarter of 2011 compared with the previous quarter. Total business 

loans outstanding and gross domestic product continued to trend upward. 

•	 Small Business Quarterly Bulletin, First Quarter 2011

http://www.sba.gov/sites/default/files/files/SBQB_2011q1.pdf

Release date: May 26, 2011

Author: Brian Headd

The Small Business Quarterly Bulletin, a new publication with commentary and 

analysis on the current employment and financing trends of small businesses, showed 

a positive first quarter 2011 for small businesses. Small business employment and 

financing were trending upward along with GDP, which had been growing for seven 

quarters.
6 Annual Report of the Office of Economic Research, FY 2011

Factors Affecting Entrepreneurship among Veterans

http://www.sba.gov/advocacy/7540/15428

Release date: May 11, 2011

Author: SAG Corporation

This report took a new look at veteran entrepreneurship. Previous Advocacy-sponsored 

research and more than three decades of data from the Bureau of Labor Statistics have 

established that veterans have a consistently higher rate of self-employment than nonveterans. Why? The new study investigates this question and quantifies a variety of factors 

observed in its analyses.

How Do Firms Choose Legal Form of Organization?

http://www.sba.gov/sites/default/files/files/rs383tot.pdf

Release date: April 20, 2011

Author: Rebel Cole

To incorporate, or to not to incorporate: that is the question posed at start-up. This report 

finds that the choice of legal form of organization is relatively stable over a firm’s first 

four years. When changes do occur, they tend to be to the more complex forms of organization.

Beyond Bankruptcy: Does the Bankruptcy Code Provide a Fresh Start to Entrepreneurs?

http://www.sba.gov/advocacy/7540/15050

Release date: April 6, 2011

Author: Aparna Mathur

The U.S. bankruptcy system is designed to recover funds for creditors while giving bankrupt small businesses an opportunity for a “fresh start.” While a fresh start is a goal of 

the system, little analysis has been done to evaluate the ability of small firms to reset and 

thrive after bankruptcy. This paper attempts to fill that gap. The research finds that 2.6 

percent of firms filed for bankruptcy within the previous seven years, that they are comparable to other firms in terms of cash flow and firm size, and that they have a 24 percent 

higher likelihood of being denied a loan and are charged interest rates 1 percent higher 

than those charged other firms.

Quarterly Lending Bulletin / Small Business Lending: Fourth Quarter 2010

http://www.sba.gov/sites/default/files/files/SBL_2010Q4.pdf

Release date: March 28, 2011

Author: Victoria Williams

The Office of Advocacy issued its first Quarterly Lending Bulletin, a new report summarizing trends in small business lending based on Call Report data. Analysis of bank holding companies and other depository institutions with assets over $50 billion indicated that 

small business loans outstanding had stabilized since the previous September. Overall, 

small business lending outstanding appeared to be stabilizing compared with the trend in 

the previous quarter. However, the general results showed that aggregate small business 

lending had yet to follow the trend of gross domestic product (GDP) which had turned 

upward, along with total business lending.
7 Annual Report of the Office of Economic Research, FY 2011

Lending by Depository Institutions to Small Businesses, 2003-2010

http://www.sba.gov/advocacy/7540/14927

Release date: March 24, 2011

Author: George Haynes

This study examined the supply of small business lending from depository lenders over 

the 2003-2010 period. The study used five performance measures: small business aggregate loan volume, numbers of loans, average loan sizes, and ratios of small business 

loans to total assets and of small business loans to total business loans. The research 

relied on data provided by depository institutions to their respective regulating agencies—Call Reports for June of each year from 2003 to 2010. The first section emphasized 

lending institutions with total assets exceeding $10 billion, while the second examined 

small business loans held by “community lenders” with assets of less than $10 billion. 

Small businesses continued to rely heavily on large banks for capital: the largest lenders 

with more than $50 billion in assets increased their market share of small business lending from 28.7 percent in 2003 to 38.7 percent in 2010.

An Examination of the 2001 IRS Tax Gap Estimates’ Effects on Small Businesses

http://www.sba.gov/advocacy/7540/14864

Release date: March 23, 2011

Author: Quantria Strategies

The study shows that small businesses are disproportionately affected by measures to 

close the tax gap—the difference between taxes owed and taxes paid. The study highlights flaws with the overall estimates, particularly as they relate to large corporations and 

international tax transactions. 

2010 Small Business Profiles for the States and Territories

http://www.sba.gov/advocacy/7540/14513

Release date: February 28, 2011

Author: Victoria Williams, Rebecca Krafft, ed.

The small business profiles supply data on small firms in each of the 50 states and the 

District of Columbia, as well as national-level data and limited data on the U.S. territories. The following topics are covered: the number of firms, demographics of business 

ownership, small business income, banking, business turnover, industry composition, and 

employment gains and losses by size of business.

Small Business Lending in the United States, 2009-2010

http://www.sba.gov/advocacy/7540/14432

Release date: February 10, 2011

Author: Victoria Williams and George Haynes

The study used Call Reports for 2010 and Community Reinvestment Act (CRA) reports 

for 2009 to examine the lending activities of U.S. depository institutions. The data cover 

savings banks and savings and loan associations, in addition to commercial banks. Geographic coverage includes the 50 states and the District of Columbia, American Samoa, 

Guam, Puerto Rico, and the U.S. Virgin Islands. This edition for the first time includes 

cooperative banks. The rankings and performance of these lenders were summarized and 
8 Annual Report of the Office of Economic Research, FY 2011

organized by state/ territory, loan size, number of loans, and asset size of the institution. 

Lending to small firms by U.S. financial institutions continued to decline, but began to 

stabilize in some loan size categories over the 2009-2010 period. GDP has turned upward, and business lending may follow the pattern of other recessions, in which commercial and industrial lending grew only after the recovery was well under way.

The Small Business Economy 2010

http://www.sba.gov/advocacy/7540/13789

Release date: January 25, 2011

Author: Advocacy Office of Economic Research, Kathryn Tobias, ed.

The 2010 edition of The Small Business Economy featured subsections on small business 

contributions to job creation and innovation, challenges such as health care and pension 

coverage, and opportunities in exporting and federal procurement. The report showed that 

in 2009, after weathering a deep recession that began in late 2007, the American economy 

began to stabilize. For small businesses, one of the biggest remaining challenges was the 

lack of sales adequate to grow employment. Many economic indicators began to show 

improvement by year’s end.

Frequently Asked Questions about Small Business (FAQ)

http://www.sba.gov/advocacy/7495

Release date: January 2011

Author: Brian Headd

Frequently Asked Questions about Small Business gathers dozens of the latest statistics 

about America’s small business in one place. Updated annually, it is a convenient source 

for confirming facts like the total number of small businesses, their share of employment 

and net new jobs, starts, closures, and small firms’ overall contribution to the U.S. economy.

Small Business Lending in the United States, 2008-2009

http://www.sba.gov/advocacy/7540/12979

Release date: December 10, 2010

Author: Victoria Williams

The report used June 2009 Call Report data and 2008 Community Reinvestment Act data 

to examine developments in small business lending in 2008-2009. It provided a listing of 

the top small and micro business lenders in the 50 states, the District of Columbia, and 

some U.S. territories. The report found that lending and borrowing by lending institutions 

and small firms declined in response to uncertain economic conditions in 2008-2009. For 

the first time since the Call Reports became available in 1994, lending in all loan size 

categories declined. The drop was most severe in the market for loans under $100,000, as 

borrowers and lenders held off on new lending activity. 
9 Annual Report of the Office of Economic Research, FY 2011

The Impact of Broadband Speed and Price on Small Business

http://www.sba.gov/advocacy/7540/12828

Release date: November 16, 2010

Author: Columbia Telecommunications Corporation

This report was a congressionally mandated study of businesses’ Internet access across 

the nation. The authors developed a framework to evaluate the options available to small 

businesses, rural and urban, and conducted a survey of business Internet usage and costs. 

A key finding is the difference in the price and speed of broadband service available in 

rural and urban America. When prices were held constant, rural small businesses received 

less service than metropolitan small businesses; when services were held constant, rural 

small businesses paid higher prices than urban small businesses.

Quarterly Indicators: The Economy and Small Business

http://archive.sba.gov/advo/research/sbqei1003.pdf

Release date: November 10, 2010

Author: Chad Moutray

This update of Advocacy’s series on small business economic trends showed that the 

U.S. economy grew for the fifth consecutive quarter, with real gross domestic product up 

2 percent in the third quarter. Personal consumption, which makes up 70 percent of real 

GDP, increased at a 2.6 percent annual rate. Real gross private fixed investment was up 

an annualized 12.8 percent, and real exports rose 5 percent.

Race/Ethnicity and Establishment Dynamics, 2002-2006

http://www.sba.gov/advocacy/7540/12158

Release date: November 5, 2010

Author: Ying Lowrey

This report matched data from the 2002 Survey of Business Owners (SBO) and the 1989-

2006 Business Information Tracking Series (BITS). The series focused on business dynamics by gender, race/ethnicity, and business type (publicly or non-publicly held). The 

report first provides general social, economic, and business background by race/ethnicity 

of the owner. The report also covers the industry, employment, and/or receipts size, and 

state location characteristics of establishments (those with employees) for which the race/

ethnicity of the enterprise owner was identified in 2002.
11 Annual Report of the Office of Economic Research, FY 2011

Research Conferences

In light of the recession’s effects on small firms, which continue to be the nation’s foremost job creators, the Office of Advocacy sponsored two conferences in fiscal year 2011 

looking at small firms’ job creation role and the need for better access to capital for all 

small firms, especially those prolific “high-impact” creators of innovative products and 

jobs.

High-impact Entrepreneurship Outlook: Finance and 

Innovation Create Jobs

On October 14, 2010, Advocacy gathered small business stakeholders on Capitol Hill for 

a symposium on how and what kinds of jobs innovative small businesses create, as well 

as the current state of small business finance. Topics for discussion included:

• Where we are in the early 21st century: A look at the kinds of high growth firms 

that have been creating jobs.

• The importance of innovation and incentives: The critical roles of innovative 

ideas and the tangible and intangible economic factors that encourage them. 

• Financing high-impact firms: Can financial incentive structures be changed to better support entrepreneurial firms?

The day was designed to allow for maximum audience participation. Members of the 

small business community, economists, and policymakers joined SBA Administrator Karen Mills and Advocacy Chief Counsel Winslow Sargeant for discussions and a networking opportunity. The consensus of many participants was that public-private partnerships 

are important in helping small businesses succeed and create jobs. Speaker Dr. Jeremy 

Wiesen pointed out that the U.S. government funded the Internet, known as Arpanet, in 

the 1960s, and provided grants that led to key private sector breakthroughs in semiconductor technology. Government actions have often been a catalyst for private sector innovation and subsequent job creation. 

SBA Administrator Karen Mills summed up key measures in the Small Business Jobs 

Act, which provided $30 billion in funding to community banks, intended as a lifeline for 

small businesses and a catalyst for further capital infusions. Gene Sperling, counsel to the 

Secretary of the Treasury, closed the symposium with more details on the act. The highlevel officials in attendance signaled the importance of the small business job creation 

and financing topic to the Administration and the nation. 

Small Business Capital Crunch: Debt and Equity

Following up on findings that small firms were struggling to gain access to the capital 

they need to start and grow their businesses, the Office of Advocacy convened a symposium on September 15, 2011, on debt and equity aspects of the small business financing 

challenge. 
12 Annual Report of the Office of Economic Research, FY 2011

The event at the Capitol Visitors Center also provided participants with new Advocacy research tools, including the publication, Frequently Asked Questions about Small 

Business Finance and two new research studies, Bank Liquidity Pressures and the Availability of Bank Credit to Small Firms: Was the 2007-2009 Credit Crisis Different? and 

The Growing Impact of Credit Unions on Small Business Lending. 

Chief Counsel Winslow Sargeant opened the conference. The first panel, “How to 

Fix the Banking Crunch,” brought together an economist, a banker, and a small business 

owner for their perspectives on the capital crunch in the banking sector.

• Federal Reserve Board research economist Traci Mach discussed the numbers 

behind the capital crunch in the banking sector. Based on call report data, small 

business loans continued to decline in the second quarter, while large business 

loans picked up. 

• Jim Chessen of the American Bankers Association focused on the landscape for 

banks—most of them small—and said that Dodd-Frank has seriously added to the 

regulatory burden for small banks. 

• Marilyn Landis of Basic Business Concepts, Inc., provides CFO-level services to 

small businesses, and said that for small firms struggling with the downturn, the 

greatest need for capital is in amounts under $250,000.

The second panel assembled three experts to look at the equity side of the capital 

crunch. 

• Daphne Dufresne, who has worked in the venture capital and private equity business, said that in the lower middle market—companies with cash flow of $6 million to $15 million—equity infusions have led to increases in jobs and growth. 

• Mark Heesen, president of the National Venture Capital Association, discussed the 

ongoing partnership that accompanies equity financing. 

• David Robinson, professor of finance at Duke University’s Fuqua School of Business, said that while venture capital-backed firms are a very small fraction of the 

number of small firms, they account for a disproportionate share of job growth. 

Closing the conference, Chief Counsel Winslow Sargeant noted that while one year is 

a data point to an economist, to a small business owner it is 365 mornings of waking up 

to concerns about the business. Those who will create the next great companies will need 

the capital to start and grow. 
13 Annual Report of the Office of Economic Research, FY 2011

Data Access

In fiscal year 2011, the Office of Advocacy continued to provide downloadable data and 

links to data on its website. Data cover businesses with and without employees—employer and nonemployer firms.1

 Most firms are nonemployer firms; the larger share of receipts 

and payroll are in employer firms.

Data on employers and associated business characteristics are from the Statistics of 

U.S. Businesses (SUSB), Business Dynamics Statistics (BDS), and Business Employment Dynamics (BED) programs and data on nonemployers are from the Nonemployer 

Statistics (NE) program. The data programs are annual and are produced by the U.S. Census Bureau, except the Business Employment Dynamics data series, which is quarterly, 

from the U.S. Bureau of Labor Statistics. Detailed data on business owners and business 

characteristics are available from the U.S. Census Bureau’s Survey of Business Owners, 

part of the Economic Census, for years ending in 2 or 7.

The PDF files on Advocacy’s website present quick views of data at high levels of aggregation and are available in MS Excel files for ease of use. The tab-delimited text files 

contain more data detail and can easily be copied and pasted into spreadsheet software.

Public and federal agencies are encouraged to use the data for economic research and 

regulatory analyses. The Office of Advocacy defines a small business for research purposes as an independent business having fewer than 500 employees.2

Differences Between Static and Dynamic Data

Most of the tables use static data, which indicate the importance of firm size classes 

and their changing importance over time. Dynamic data indicate the growth of firm size 

classes over time. Dynamic data were created using a longitudinal database from the U.S. 

Census Bureau.

Static firm size data report the number of firms, number of establishments, employment, annual payroll, and estimated receipts by employment size of firm. Firms are defined by their employment size at a point in time on a yearly basis. Because firms can 

change employment size classes from year to year, static firm size data cannot indicate 

the performance of employment size classes. However, comparisons of static firm size 

data can illustrate the changing importance of small and large firms by location or industry.

1 See http://www.sba.gov/advocacy/849/12162.

2 Note, however, that for purposes such as government contracting and lending, the SBA’s Office of Size Standards provides 

detailed industry definitions of small businesses.
14 Annual Report of the Office of Economic Research, FY 2011

Dynamic firm size data report changes in establishments and employment classified 

by the beginning year employment size of a firm. Changes are caused by the creation 

of new firms (original establishments) or new establishments of existing firms (secondary establishments), deaths of original or secondary establishments, and expansion or 

contraction of employment at existing establishments. New firms are classified by their 

end-of-year firm size. Dynamic data show the performance of firm employment size categories.

Dynamic and static figures can differ because dynamic data exclude establishments 

with zero employment. End-of-year figures in firm employment size categories will differ between dynamic and static data for the same year because in dynamic data, firms are 

defined by their beginning year employment size. Dynamic data are better than static data 

for tracking firms that change in ownership or legal form during the year.

Statistics of U.S. Businesses

The Office of Advocacy partially funds the U.S. Census Bureau to produce data on employer firm size in the Statistics of U.S. Businesses (SUSB) program. In these data, a firm 

is defined as the aggregation of all establishments owned by a parent company (within 

a geographic location and/or industry) that have some annual payroll. A firm may be located in one or more places.

SUSB’s employer data include the number of firms, number of establishments, employment, and annual payroll for employment size of firm categories by location and 

industry. The employer data consist of static and dynamic data. Unless otherwise noted, 

the data are static, that is, they are a “snapshot” of firms at a point in time. Receipts by 

employment size of firm are available for 1997 and 2002, and special tabulations by receipts size of firm are available for the United States. Industries are defined according 

to Standard Industrial Classification for 1988 to 1998 and the North American Industry 

Classification System (NAICS) thereafter. 

Data include the following, most by employment size class:

• The economy segmented into 25 size classes, 2008 (PDF file) 1992-2008 (TXT file)

• Totals, 1988-2008 (PDF file)

• Major industries, 1988-1998, 1998-2008 (PDF files)

• All industries by NAICS codes, 2008 (PDF file) 

• All industries, 1990-1998, 1998-2002, 2003-2008 (TXT files)

• Legal form of organization by major industry, 2008 (PDF file)

Classified by other firm size measures:

• Receipts size of firm by major industry group, 1997, 2002 & 2007 (PDF file)

• All industries by receipts size, 1997, 2002, 2007 (TXT files)

• Annual payroll size of firm by major industry group, 2006 (PDF file)

Dynamic data, by births, deaths, growth, and decline:

• Business births, deaths and job creation, 1989-2008 (PDF file)

• Major industries, 2005-2008 (PDF file)
15 Annual Report of the Office of Economic Research, FY 2011

• Industry data, 1989-1998, 1998-2008 (TXT files)

State, Metropolitan Statistical Area (MSA) and county (Microsoft Excel file of PDF files 

plus historic data)

Classified by employment size of firm:

• State totals, 1990,1995, 2000-2008 (PDF file) 1988-2008 (TXT File)

• State major industry data, 1988-1997, 1998-2002, 2003-2008 (TXT file)

• State detailed industry data, 1998-2008 (TXT file)

• MSA totals, 1995, 2000-2008 (PDF file)

• MSA major industry group data, 2004, 2005, 2006, 2007, 2008, Totals 1993-2008 

(TXT files)

• State MSA and Non-MSA totals, 1995-2008 (TXT file)

• Micropolitan Statistical Areas 2004, 2005, 2006, 2007, 2008 (TXT file)

• Counties: size class 2007-2008, totals 2000-2008 (TXT files)

Classified by annual payroll size of firm:

• State annual size of firm, 2006 (PDF file)

Dynamic data, births, deaths, growth and decline:

• State totals, 2005-2008 (PDF file)

• State MSA/ Non-MSA net changes, 2005-2008 (PDF file)

• MSA business births, deaths and employment, 2005-2008 (PDF file)

• State major industry data 1989-1998, 1998-2008 (TXT files)

• State MSA and non-MSA totals, 1995-2008 (TXT file)

• Metro and micropolitan statistical areas, 2003-2008 (TXT file)

• Counties (no size data available), 2005-2007, 2007-2008; (TXT file)

Business Dynamics Statistics

Business Dynamics Statistics (BDS) provide employer firm data by firm age.3 Advocacy’s 

website offers an introduction to the data program including the following:4

• Firms and establishments by firm age, 1977-2009 (Microsoft Excel file)

• Employment by firm age, 1977-2009 (Microsoft Excel file)

• Establishments and employment by employment size of firm, 1977-2009 (Microsoft 

Excel file)

3 For more information see Business Formation and Dynamics by Business Age: Results from the New Business Dynamics 

Statistics by John Haltiwanger, Ron Jarmin and Javier Miranda, http://www.ces.census.gov/docs/bds/bds_paper_CAED_

may2008_dec2.pdf.

4 More information can be found on the U.S. Census Bureau’s Business Dynamics Statistics program website at http://www.

ces.census.gov/index.php/bds and on the database list at for background about the data and their database list at http://

www.ces.census.gov/index.php/bds/bds_database_list.
16 Annual Report of the Office of Economic Research, FY 2011

Business Employment Dynamics

The Business Employment Dynamics program offers employer firm data with a focus on 

employment changes from establishment entry, growth, decline, and exit. Because the 

data are quarterly, some establishments close and reopen in the same year. Fortunately, 

BLS presents the data in two ways to capture the seasonal firms by listing establishment 

openings (establishments that did not exist in the previous quarter) and establishment 

births (those that did not exist in the previous year), with similar classifications for business closings and deaths.5

 Recently, the data program has added establishment age data.

Advocacy’s website introduces the data program; the U.S. Department of Labor, Bureau 

of Labor Statistics’ BED program provides background and more detailed data.6

 Data 

provided include the following:

• Quarterly establishment births, deaths and associated employment, mid-1992–2010

• State quarterly establishment births, deaths and associated employment, mid-1992–

2010 (see Tables 9)

• Quarterly net job change by employment size of firm, mid-1992–2010 (totals do not 

match other figures as some firms do not have firm size identifiers)

• Employer firms by employment size of firm, 1993–2010

• Employment by employment size of firm, 1993–2010

• Establishment age and survival 1994–2010

• Establishment size of change (www.bls.gov/bdm/bdsoc.htm)

Nonemployer Statistics

A nonemployer firm is defined as one that has no paid employees, has annual business 

receipts of $1,000 or more ($1 or more in the construction industries), and is subject to 

federal income taxes. The Census Bureau, which provides nonemployer business data, 

finds that ”Nonemployers account for roughly 3 percent of business activity [in terms of 

sales or receipts]. At the same time nonemployers account for nearly three-quarters of all 

businesses. Most nonemployer businesses are very small, and many are not the primary 

source of income for their owners.”7

 The following data are included:8

• U.S. industry data by NAICS code, 1997-2009 (PDF file)

• State totals, 1992,1997-2009 (PDF file)

• Capital expenditures for employers and nonemployers, 1996-2009 (PDF file)

5 For more information, see Measuring job and establishment flows with BLS longitudinal microdata by Timothy Pivetz, Michael Searson, and James Spletzer for information on the data program.

6 See http://www.bls.gov/bdm/.

7 For details, see the U.S. Census Bureau’s Nonemployer Statistics at http://www.census.gov/econ/nonemployer/ and the 

Annual Capital Expenditures Survey at http://www.census.gov/econ/aces/.

8 For county data, go directly to the U.S. Census Bureau’s Nonemployer Statistics, http://www.census.gov/econ/nonemployer/.
17 Annual Report of the Office of Economic Research, FY 2011

Appendix A: Research Functions 

Public Law 94-305: Research Functions of the Office of Advocacy

Public Law 94-305 established the Office of Advocacy within the U.S. Small Business 

Administration and included a list of Advocacy’s primary functions codified in 15 U.S.C. 

§ 634b. Paragraph 11 was added to the list by P.L. 96-481 in 1980 and paragraph 12 was 

added by P.L. 106-50 in 1999.

15 U.S.C. § 634b: Primary functions of Office of Advocacy

The primary functions of the Office of Advocacy shall be to—

(1) examine the role of small business in the American economy and the contribution 

which small business can make in improving competition, encouraging economic and 

social mobility for all citizens, restraining inflation, spurring production, expanding 

employment opportunities, increasing productivity, promoting exports, stimulating innovation and entrepreneurship, and providing an avenue through which new and untested 

products and services can be brought to the marketplace;

(2) assess the effectiveness of existing Federal subsidy and assistance programs for small 

business and the desirability of reducing the emphasis on such existing programs and 

increasing the emphasis on general assistance programs designed to benefit all small businesses;

(3) measure the direct costs and other effects of government regulation on small businesses; and make legislative and nonlegislative proposals for eliminating excessive or unnecessary regulations of small businesses;

(4) determine the impact of the tax structure on small businesses and make legislative and 

other proposals for altering the tax structure to enable all small businesses to realize their 

potential for contributing to the improvement of the Nation’s economic well-being; 

(5) study the ability of financial markets and institutions to meet small business credit 

needs and determine the impact of government demands for credit on small businesses;

(6) determine financial resource availability and to recommend methods for delivery of 

financial assistance to minority enterprises, including methods for securing equity capital, 

for generating markets for goods and services, for providing effective business education, 

more effective management and technical assistance, and training, and for assistance in 

complying with Federal, State, and local law; 

 (7) evaluate the efforts of Federal agencies, business and industry to assist minority enterprises;

(8) make such other recommendations as may be appropriate to assist the development 

and strengthening of minority and other small business enterprises;
18 Annual Report of the Office of Economic Research, FY 2011

(9) recommend specific measures for creating an environment in which all businesses 

will have the opportunity to complete [compete] effectively and expand to their full potential, and to ascertain the common reasons, if any, for small business successes and

failures;

(10) determine the desirability of developing a set of rational, objective criteria to be used 

to define small business, and to develop such criteria, if appropriate;

(11) advise, cooperate with, and consult with, the Chairman of the Administrative Conference of the United States with respect to section 504(e) of title 5; and

(12) evaluate the efforts of each department and agency of the United States, and of 

private industry, to assist small business concerns owned and controlled by veterans, as 

defined in section 632(q) of this title, and small business concerns owned and controlled 

by serviced-disabled [service-disabled] veterans, as defined in such section 632(q) of this 

title, and to provide statistical information on the utilization of such programs by such 

small business concerns, and to make appropriate recommendations to the Administrator 

of the Small Business Administration and to the Congress in order to promote the establishment and growth of those small business concerns.
Frequently Asked Questions www. Advocacy: the voice of small business in government sba.gov/advo

Office of Advocacy

What is a small business? 

The Office of Advocacy defines a small business as an independent business having fewer than 500 employees. (The 

definition of “small business” used in government programs 

and contracting varies by industry; see www.sba.gov/size.) 

How important are small businesses to 

the U.S. economy? 

Small firms:

• Represent 99.7 percent of all employer firms.

• Employ about half of all private sector employees.

• Pay 43 percent of total U.S. private payroll.

• Have generated 65 percent of net new jobs over the past 17 

years.

• Create more than half of the nonfarm private GDP.

• Hire 43 percent of high tech workers (scientists, engineers, computer programmers, and others).

• Are 52 percent home-based and 2 percent franchises.

• Made up 97.5 percent of all identified exporters and produced 31 percent of export value in FY 2008.

• Produce 16.5 times more patents per employee than large 

patenting firms.

Source: U.S. Dept. of Commerce, Census Bureau and Intl. Trade Admin.; 

Advocacy-funded research by Kathryn Kobe, 2007 (archive.sba.gov/advo/

research/rs299tot.pdf) and CHI Research, 2003 (archive.sba.gov/advo/research/rs225tot.pdf); U.S. Dept. of Labor, Bureau of Labor Statistics.

How many small businesses are there? 

In 2009, there were 27.5 million businesses in the United 

States, according to Office of Advocacy estimates. The 

latest available Census data show that there were 5.9 million 

firms with employees in 2008 and 21.4 million without employees in 2008. Small firms with fewer than 500 employees 

represent 99.9 percent of the total (employers and nonemployers), as the most recent data show there were 18,469 large 

businesses in 2008.

Source: Office of Advocacy estimates based on data from the U.S. Dept. of 

Commerce, Census Bureau, and trends from the U.S. Dept. of Labor, Bureau 

of Labor Statistics, Business Employment Dynamics.

What is small firms’ share of employment? 

Small businesses employ about half of U.S. workers. Of 

the 120.9 million nonfarm private sector workers in 2008, 

small firms employed 59.7 million and large firms employed 

61.2 million. About half of small firm employment is in second-stage companies (10-99 employees), and half is in firms 

that are 15 years or older. Small firms’ share of employment 

in rural areas is slightly higher than in urban areas; their share 

of part-time workers (22 percent) is similar to large firms’ 

share (19 percent). Small firms’ employment share remains 

steady since some small firms grow into large firms over time.

Source: U.S. Dept. of Commerce, Census Bureau: Statistics of U.S. Businesses, Current Population Survey, and Business Dynamics Statistics; and the 

Edward Lowe Foundation (http://youreconomy.org).

What share of net new jobs do small 

businesses create? 

Small firms accounted for 65 percent (or 9.8 million) of 

the 15 million net new jobs created between 1993 and 

2009. Much of the job growth is from fast-growing highimpact firms, which represent about 5–6 percent of all firms 

and are on average 25 years old.

Source: U.S. Dept. of Labor, Bureau of Labor Statistics, Business Employment Dynamics; Advocacy-funded research by Zoltan Acs, William Parsons 

and Spencer Tracy, 2008 (archive.sba.gov/advo/research/rs328tot.pdf).

How many businesses open and close 

each year? 

An estimated 552,600 new employer firms opened for business in 2009, and 660,900 firms closed. This amounts to an 

annual turnover of about 10 percent. Nonemployer firms have 

turnover rates three times as high, mostly because it is much 

easier for them to go into business and cease operations. 

Starts and Closures of Employer Firms, 2005–2009

Category 2005 2006 2007 2008 2009

Births 644,122 670,058 668,395 626,400e 552,600e

Closures 565,745 599,333 592,410 663,900e 660,900e

Bankruptcies 39,201 19,695 28,322 43,546 60,837

Notes: e = Advocacy estimate. Bankruptcies include nonemployer firms. 

Source: U.S. Dept. of Commerce, Census Bureau; Administrative Office 

of the U.S. Courts; U.S. Dept. of Labor, Business Employment Dynamics 

(BED). Estimates based on Census data and BED trends.

What is the survival rate for new firms? 

Seven out of 10 new employer firms survive at least 2 

years, half at least 5 years, a third at least 10 years, and 

a quarter stay in business 15 years or more. Census data 

report that 69 percent of new employer establishments born 

to new firms in 2000 survived at least 2 years, and 51 percent 

survived 5 or more years. Survival rates were similar across 

states and major industries. Bureau of Labor Statistics data 

on establishment age show that 49 percent of establishments 

survive 5 years or more; 34 percent survive 10 years or more; 

and 26 percent survive 15 years or more.

Source: U.S. Dept. of Commerce, Census Bureau, Business Dynamics Statistics; U.S. Dept. of Labor, Bureau of Labor Statistics, BED.

How are credit conditions for small firms? 

Credit conditions are improving. In mid-2010, commercial 

banks began to ease the tight lending conditions on small 

businesses that had begun in early 2007. And credit has continued to flow, as loans under $1 million totalled $695 billion 

in FY 2009. Also, after declining over the past few years, venture capital investment dollars increased in mid-2010.

Source: Federal Reserve Board, Senior Loan Officer Opinion Survey and 

Call Report data; National Venture Capital Association.

Updated January 2011
How are small businesses financed? 

Small businesses rely heavily upon owner investment and 

bank credit, averaging about $80,000 a year for young 

firms. Startups rely about equally on the owners’ cash injections into the business and bank credit; young firms receive 

about three-quarters of their funds from banks via loans, 

credit cards, and lines of credit. One-tenth of startups and 

about a third of young firms do not use capital injections.

Source: Kauffman Foundation, An Overview of the Kauffman Firm Survey: 

Results from the 2004–2008 Data, (Alicia Robb, E.J. Reedy, Janice Ballou, 

David DesRoches, Frank Potter, Zhanyun Zhao), May 2010. 

How do regulations affect small firms? 

The smallest firms (fewer than 20 employees) spend 36 

percent more per employee than larger firms to comply 

with federal regulations. The disparity is greatest in two 

areas: very small firms spend four and a half times as much 

per employee to comply with environmental regulations and 

three times more per employee on tax compliance than their 

largest counterparts.

Annual Cost of Federal Regulations by Firm Size

Cost per Employee for Firms with: Type of 

Regulation Fewer than 20–499 500 or More

20 Employees Employees Employees

All Regulation $10,585 $7,454 $7,755

Economic 4,120 4,750 5,835

Environmental 4,101 1,294 883

Tax Compliance 1,584 760 517

Occupational 

Safety and Home- 781 650 520

 land Security

Source: The Impact of Regulatory Costs on Small Firms, an Advocacyfunded study by Nicole Crain and Mark Crain, 2010 (archive.sba.gov/

advo/research/rs371tot.pdf).

Whom do I contact about regulations? 

To learn about pending regulation, visit Advocacy’s Regulatory Alerts webpage, www.sba.gov/advocacy/815; to comment on pending regulations, email advocacy@sba.gov. To 

report unfair regulatory enforcement, contact SBA’s National

Ombudsman at ombudsman@sba.gov.

What is the role of women, minority, an

veteran entrepreneurs? 

Of the 27.1 million nonfarm businesses in 2007, women 

owned 7.8 million businesses, which generated $1.2 trillion 

in revenues, employed 7.6 million workers, and paid $218 

billion in payroll. Another 4.6 million firms were 50 percent 

women owned. Minorities owned 5.8 million firms, which 

generated $1 trillion in revenues and employed 5.9 million 

people. Hispanic Americans owned 8.3 percent of all U.S. 

businesses; African Americans, 7.1 percent; Asian Americans, 5.7 percent; American Indians and Alaska Natives, 

0.9 percent; and Native Hawaiian or other Pacific Islanders, 

0.1 percent. Veterans owned 2.4 million businesses in 2007, 

d 

generating $1.2 trillion in receipts; another 1.2 million firms 

were 50 percent veteran owned. About 7 percent of veteran 

business owners had service-connected disabilities in 2002.

 In 2008, the overall rate of self-employment (unincorporated and incorporated) was 9.8 percent, and the rate was 7.1 

percent for women, 7.2 percent for Hispanic Americans, 4.7 

percent for African Americans, 9.7 percent for Asian Americans and Native Americans, and 13.6 percent for veterans. 

Service-disabled veterans had lower self-employment rates 

than non-service-disabled veterans.

Source: U.S. Dept. of Commerce, Census Bureau, Survey of Business Owners; Advocacy-funded research by Open Blue Solutions, 2007 (archive.sba.

gov/advo/research/rs291tot.pdf), and Office of Advocacy: The Small Business Economy (www.sba.gov/advocacy/849).

At what rates are the self-employed taxed? 

Of the 15.5 million individuals whose primary occupation 

was self-employment (incorporated and unincorporated), the 

median personal marginal federal tax rate was 10 percent 

in 2008. Only 4.1 percent of the self-employed were in the 

marginal tax bracket of 33 percent or more.

Source: U.S. Dept. of Commerce, Census Bureau, Current Population Survey, March Supplement (special tabulation).

What research exists on the cost and 

availability of health insurance? 

A Kaiser Family Foundation study confirmed the connection 

between firm size and offering health insurance. The survey 

shows that almost 60 percent of businesses with 3–9 workers 

offer health benefits to their employees. The ratio grows to 

more than three-fourths for firms with 10–24 employees, to 

92 percent for firms with 25–49 employees, and to 99 percent 

for firms with 200 employees or more. Almost two-thirds of 

workers take health insurance coverage when offered. Overall 

in 2009, small firm employees were almost twice as likely as 

large firm employees to be uninsured (27.2 percent vs. 14.7 

percent, respectively).

Source: Kaiser Family Foundation and the Health Research and Educational 

Trust, Employer Health Benefits 2010 Annual Survey; Employee Benefit 

Research Institute, Sources of Health Insurance and Characteristics of the 

Uninsured: Analysis of the March 2010 Current Population Survey.

How can I get more information?

For more information, visit Advocacy’s website:

www.sba.gov/advocacy. Specific points of interest include:

• Economic research: www.sba.gov/advocacy/847.

• Firm size data: www.sba.gov/advo/849.

• Lending: www.sba.gov/advocacy/852.

• Small business profiles by state and territory: 

www.sba.gov/advocacy/848.

• The Small Business Advocate newsletter: 

www.sba.gov/advocacy/810.

For email delivery of Advocacy’s newsletter, press, regulatory 

news, and research, visit http://web.sba.gov/list. For RSS 

feeds, visit www.sba.gov/advocacy/feed. Direct questions to 

(202) 205-6533 or advocacy@sba.gov.

The SBA’s Office of Advocacy was created by Congress in 1976 to protect, strengthen, and effectively represent the nation’s small businesses 

within the federal government. As part of this mandate, the office conducts policy studies and economic research on issues of concern to small 

business and publishes data on small business characteristics and contributions. For small business resources, statistics, and research, visit the 

Office of Advocacy’s home page at www.sba.gov/advocacy.
Office of Advocacy Page 1 September 2011

Frequently Asked Questions about Small Business Finance

This document sketches the ecosystem 

or life-cycle of small business financing. 

The FAQ format allows users to browse 

through topics and learn about specific 

issues. Small businesses, which include 

startups in such sectors as information 

technology, service, retail, and manufacturing, have varying financial needs. The 

answers provided here represent averages or totals that can be used as figures 

and trends for differing types of firms. 

For further small business data and 

research information, visit the Office of 

Advocacy’s website at www.sba.gov/

advocacy/847.1

General small business 

finance

What are the main reasons small 

businesses seek financing?

Small businesses borrow for four principal reasons: for starting the business, 

purchasing inventory, expanding the 

business, and strengthening the financials of the firm. Firms choose different 

means of financing depending on the 

intended purpose.

1. The data sources cited here tend to differ widely, probably because of the differing 

subgroups of businesses that they cover. For 

instance, data from the Census Bureau’s Survey of Business Owners reflects all businesses, 

while data from D&B reflects a smaller pool 

dominated by older and larger businesses. This 

can make this FAQ seem choppy and at times 

inconsistent. The bottom line is that there is 

often no perfect data source for many of the 

questions. 

What types of funding do entrepreneurs 

and small firms use to finance their 

ventures? 

Financing falls into two categories: debt

and equity. Table 1 shows the sources 

and types of financing available to 

entrepreneurs. Some of these sources are 

unusual or unconventional. In addition, 

when a small business obtains a government procurement contract, it can play 

Table 1. Types of Capital by Source

Category Source Type

Debt

Owner(s)

Institutional lenders (banks and other 

depository institutions, nondepository 

institutions, mutual funds, pension funds, 

insurance companies, investment banks)

Business associates

Vendor financing

Family and friends

Peer-to-peer lending

Crowd funding

Leasing companies

Brokerage firms

Finance company and/or factoring

Government

Private debt placement

Loans, bootstrapping

Loans, lines of credit, leases, credit 

cards 

Loans, credit

Trade credit

Loans

Loans

Loans

Loans, capital leases, equipment

Loans, lines of credit

Trade credit

Loans (and loan guarantees)

Bonds

Equity

Owner(s)

Family and friends

Public offering markets

Government:

Small Business Investment Company 

(SBIC)

Small Business Innovation Research 

program (SBIR)

Small Business Technology Transfer 

(STTR)

Private equity placement:

 Angel investors

 Venture capitalists

Founder’s capital, savings, shares

Deposits, shares

Stocks

Shares/ownership stake

Grants

Grants

Ownership stake, promissory notes

Ownership stake, promissory notes

Hybrid Mezzanine Loans and/or ownership stake

Source: U.S. Small Business Administration, Office of Advocacy. 

Note: For definitions, please see the glossary at the end of the FAQ.

a similar role as traditional financing, 

providing the spark and fuel that are 

needed for the firm to grow.

How big is the small business financing 

market?

Small businesses’ borrowing amounts 

to about $1 trillion. In 2010, the most 

recent year we have data for, total small 

business bank loans outstanding were 
Office of Advocacy Page 2 September 2011

valued at $652 billion, and finance 

companies provided another $460 billion worth of credit. All other sources 

combined made up around 10 percent 

of small business borrowing (Figure 1). 

The recent decline in finance company 

lending (another source of small business loans) is a major contributor to the 

tight condition of today’s small business 

lending market. Total small business 

loans outstanding and SBA loans outstanding in 2010 are above 2006 levels 

What share of small businesses use 

financing?

The answer to this question depends on 

whom you ask. According to the Kauffman Firm Survey, one-third of young 

firms do not use capital injections. 

Instead they rely on owner investment 

or nonbank sources of funds. A Census 

Bureau dataset finds that over half of 

existing firms do not need expansion financing. This reflects the fact that many 

businesses are not growth businesses; 

they reach an optimal size and stay that 

way. And some businesses are structured so that they self-finance. (These 

two sources draw from different sample 

pools; the Kauffman pool has a larger 

than average business size; the Census 

set includes very small businesses and 

its average size more closely approximates the national average.)2

2. The large share of businesses that use 

no financing is reflected in general business 

surveys that rank financing low on the list of 

pressing business concerns. Of course, for the 

How are small businesses financed? 

For businesses that depend on financing, 

the two most widely used sources are 

owner investment and bank credit. 

In their early years, young firms 

make heavy use of the external debt 

market, receiving about three-quarters of 

their funds from banks via loans, credit 

cards, and lines of credit (Figure 2). The 

bulk of small business financing dollars 

comes from business and personal loans. 

Outside equity, such as angel investment and venture capital, amounts to 6 

percent of financing for young firms.3

The U.S. Census Bureau dataset confirms the importance of owner 

investment and bank loans, especially 

for employer firms (Figure 3). While 

the two principal financing data sources 

differ somewhat, similar patterns emerge 

from both: savings matter and bank 

credit matters for an important share 

of businesses. In addition, a significant 

number of established businesses do not 

use financing.

select group of firms for whom financing is 

a critical need, not being able to obtain it has 

profound implications for their ability to expand. See National Federation of Independent 

Business, Small Business Economic Trends,

www.nfib.com/research-foundation/smallbusiness-economic-trends-sbet-archive.

3. Alicia Robb, E.J. Reedy, Janice Ballou, 

David DesRoches, Frank Potter, Zhanyun 

Zhao, An Overview of the Kauffman Firm 

Survey: Results from the 2004–2008 Data,

Kauffman Foundation, May 2010. Note that 

results based on the Kauffman Firm Survey are 

based on a sample pool of businesses that are 

larger than the national average.

How are startups financed?

The Kauffman Firm Survey found that 

startup capital for small businesses is 

composed of debt and equity capital, 

and it averages roughly $80,000 a year 

per new firm. Startups depend about 

equally on the owners’ cash injections 

into the business and funds from bank 

credit (Figure 4).4

 The most frequently 

used source of startup dollars was owners’ and relatives’ savings. The U.S. 

Census Bureau found that about onethird of new nonemployer firms and 

12 percent of employer firms used no 

startup capital (Figure 5). As expected, 

employers made greater use of financing 

than did nonemployers. 

What is the dollar distribution of startup 

financing?

The median startup capital used by new 

employers is about $50,000, and by new 

nonemployers, $25,000. However, a 

large share of startups commence business operations with very little capital. 

A relatively large share of employers and nonemployers used less than 

$5,000 worth of startup financing (20 

percent and 39 percent, respectively) 

and another sizable share did not use 

any startup financing (10 and 25 percent 

respectively). See Table 2 and Figure 5 

for details.

4. Alicia Robb et al., An Overview of the 

Kauffman Firm Survey: Results from the 

2004–2008 Data, Kauffman Foundation, May 

2010.

0

20

40

60

80

100

2006 2007 2008 2009 2010

Total small business loans *

Finance companies *

SBA loans *

Mezzanine & Buyouts

Angel Capital

Venture Capital

SBIR Awards

* Outstanding

Figure 1. Share of Financing by Category (Percent) 

Note: Total small business loans are defined as all loans outstanding under $1 million, including 

SBA loans; SBA loans were measured as the amount outstanding at the end of the fiscal year. 

Finance company lending consists of all business receivables outstanding. Note that with dollar 

amounts being outstanding, the figures are greater than annual small business financing. 

Owner/family 

equity 13%

Outsider 

equity 6%

Personal

credit card 

debt 4%

Bus. credit 

card debt 7%

Personal loan

13%

Business loan

19%

Owner/family 

loan 5%

Credit line

16%

Other

17%

Figure 2. Share of Small Business Financing Dollars 

for Young Firms

Note: Firms started in 2004, reporting 2008 financing and about one-third did not use capital in the year.

Source: U.S. Small Business Administration, Office of Advocacy, from data provided by Kauffman Firm

Survey
Office of Advocacy Page 3 September 2011

How much do small businesses rely upon 

credit cards?

Credit card financing accounts for a 

small portion of small business capital; 

roughly 7 percent of all startup capital is 

derived from credit cards (includes personal and business credit cards). On the 

other hand, credit cards are very widely 

used. A recent study by the National 

Small Business Association shows the 

percentage of small businesses using 

credit cards tops all other financing 

choices. In a tight credit market small 

firms’ use of credit card financing is 

likely to increase, especially for business

expansion. Small business owners are 

more likely to carry credit card debt than

other households (54 percent versus 45 

percent respectively). With small businesses relying about half on personal 

credit cards and half on business credit 

cards, the personal credit cards would be 

affected by the Credit Card Act of 2009.5

How are franchises financed?

Existing employer franchises finance 

expansion using the same financial tools 

as other businesses, but startup franchises are more likely to use a commercial 

bank loan. (37.8 percent of franchises 

versus 23.1 percent of all employer 

startups used a bank loan.)6

5. 2009 Small Business Credit Card Survey, 

www.nsba.biz/docs/09CCSurvey.pdf. George 

Haynes, Structure of Household Debt of Small 

Business Owners in the United States: Findings from the Survey of Consumer Finances, 

1998–2007, Office of Advocacy, June 2010.

6. Brian Headd and Radwan Saade, Do Business Definition Decisions Distort Small Business Research Results? Office of Advocacy 

Working Paper, August 2008.

How are veteran-owned ventures 

financed? 

Veteran-owned businesses were extremely similar to other businesses 

in their use of credit for startup and 

expansion. For example for expansions, 

11 percent of veterans used credit cards 

and 8 percent used bank loans while the 

figures were 13 percent and 9 percent, 

respectively, for all firms.7

How are women-owned ventures 

financed?

Women are more likely than males to 

start businesses without seeking financing (Figure 6). Women-owned businesses (just like their male counterparts) 

7. The data on veteran-, woman- and minority-owned firms used here come from the U.S. 

Census Bureau, Survey of Business Owners.

Table 2: Level of Startup Capital by Firm Size 

(Percent)

Employers Nonemployers

All firms

Less than $5,000

$5,000 to $9,999

$10,000 to $24,999

$25,000 to $49,999

$50,000 to $99,999

$100,000 to $249,999

$250,000 to $999,999

$1 million or more

Not applicable

100.0

20.3

9.6

13.1

10.2

11.5

11.8

7.9

3.0

12.6

100.0

38.7

9.1

8.5

5.0

4.1

3.6

2.4

1.1

27.6

Note: Figures recalculated to account for “don’t know” responses.

Source: U.S. Small Business Administration, Office of Advocacy 

from data provided by the U.S. Census Bureau, Survey of Business 

Owners.

Figure 3. Percent of Firms Using Expansion Financing 

49.3

31.6

5.3

11.8

4.1

0.5

7.9

3.9

0.1

39.5

26.3

18.2

14.5

4.7

1.6

17.6

6.9

0.3

None needed

Personal/family savings

Business loan from bank

Personal/business credit card

Other personal/family assets

Govt.-guaranteed/direct loan

Business profits/assets

Home equity

Venture capital

Employers

Non-Employers

Note: Firms in existence in 2007.

Source: U.S. Small Business Administration, Office of Advocacy from data provided by the 

U.S. Census Bureau, Survey of Business Owners. 

Owner/family

equity 36%

Owner/family

loan 9% Personal loan

12%

Outsider equity

8%

Personal credit 

card 4%

Bus. credit 

card 3%

Other

6%

Credit line

5%

Business loan

17%

Note: Firms started in 2004 and about one-tenth did not use capital to start.

Source: U.S. Small Business Administration, Office of Advocacy, from data provided 

by Kauffman Firm Survey

Figure 4. Share of Small Business Financing Dollars 

for Startup Firms

Figure 5. Percent of Firms Using Startup Financing

25.0

59.6

7.3

10.3

7.0

0.8

4.4

0.3

10.6

62.0

19.0

10.5

9.7

2.8

8.3

0.7

None needed

Personal/family savings

Business loan from bank

Personal/business credit card

Other personal/family assets

Govt.-guaranteed/direct loan

Home equity loan

Venture Capital

Employers

Non-Employers

Note: Firms in existence in 2007.

Source: U.S. Small Business Administration, Office of Advocacy from data provided by the 

U.S. Census Bureau, Survey of Business Owners. 
Office of Advocacy Page 4 September 2011

largely depend on personal finances; 

they are more likely to use credit cards 

to fund their businesses. And women 

are almost half as likely as male-owned 

businesses to obtain business loans 

from banks. This puts women-owned 

businesses at a disadvantage, because a 

business’s relationship with a bank at the

outset not only provides funds, but often 

provides business advice and future 

goodwill.

How are minority-owned ventures 

financed?

At startup, Hispanic-owned firms are 

less likely than other business owners to 

have bank loans. Firms owned by Hispanic-Americans, African-Americans, 

and Asian-Americans were more likely 

to rely on credit cards at the outset. 

When expanding, Hispanic-owned firms 

and African-American owned were more

likely to rely upon credit cards than 

other firms. This heavier-than-average 

reliance on credit cards negatively affects a business by displacing a personal 

relationship with a bank, which is often 

the source of less costly financing that is 

tailored to a business’s needs.

How does the debt held by small 

business-owning households differ from 

other households’ debt?

Small business-owning households held 

59 percent of their debt in mortgages, 

versus 38 percent for other households. 

They were even further dependent on 

real estate as they held another 7 percent 

of their debt in residential secured debt.8

This dependence on real estate illustrates 

the double storm that small businesses 

have weathered in the last few years of 

8. George Haynes, Structure of Household 

Debt of Small Business Owners in the United 

States: Findings from the Survey of Consumer 

Finances, 1998–2007, Office of Advocacy, 

June 2010.

declining real estate values and tight 

credit in financing their businesses.

Current environment

What is the current lending environment 

for small businesses (as of August 

2011)?

Credit conditions in the small business 

market continue to remain tight, even 

though commercial banks began easing 

lending conditions in mid-2010 (Figure 

7). Billions of dollars outstanding for 

all loan sizes are down from pre-recessionary levels. But bank loans under $1 

million held relatively steady during the 

downturn, while larger loans ($1 million or more) saw a pronounced decline 

(Figure 8).9

9. Federal Reserve Board, Senior Loan Officer Opinion Survey and Call Report data.

Figure 6. Types of Financing used by Woman-Owned 

Startups (Percent)

0.5

0.4

0.1

6.0

5.5

4.0

10.9

55.5

30.3

0.7

0.7

0.4

7.7

10.7

5.6

10.4

60.3

20.8

Govt. guaranteed loan

Govt. loan

Outside investor

Other owner/family assets

Bank loan

Home equity loan

Personal/bus. credit card

Owner savings

None needed

All firms

Woman-owned

Source: U.S. Small Business Administration, Office of Advocacy from data

provided by the U.S. Census Bureau, Survey of Business Owners.

Figure 7. Small Business Bank Lending

-75

-50

-25

0

25

50

75

100

2001 2003 2005 2007 2009 2011

Percent

Tightening loan standards Stronger demand for loans

Source: Office of Advocacy, U.S. Small Business Administration from data

provided by the Federal Reserve Board Senior Loan Officer Survey.

Note: Change in percentage of respondents from the previous period.

0

50

100

150

200

250

300

350

400

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Billions of 

dollars

$100,000 or less $100,000 to $250,000

$250,000 to $1 million $1 million plus

Source: Office of Advocacy, U.S. Small Business Administration from data

provided by the Federal Reserve Board Call Report data.

Figure 8. Commercial and Industrial Loans 

Outstanding by Loan Size 

Figure 9. Small Business Interest Rates

(Loan size $100,000 to $499,000)

0

2

4

6

8

10

12

1998 2000 2002 2004 2006 2008 2010

Rate

Prime rate Fixed rate Variable (2-30 days)

Source: Office of Advocacy, U.S. Small Business Administration from data

provided by the Federal Reserve Board, Survey of Terms of Lending.
Office of Advocacy Page 5 September 2011

What interest rates are small businesses 

typically charged for loans?

Fixed interest rates on loans between 

$100,000 and $499,999 have been 6 

percent while short-term variable rate 

loans (2-30 days) have been about 4 percent (Figure 9). While interest rates are 

near their lowest point in a decade, in 

2009 the spread between the prime rate 

and the variable interest rate increased; 

this represents a perceived risk in small 

business lending not seen in the previous 

downturn around 2000. Interest rates on 

credit card balances vary widely.

What is the status of the venture capital 

market?

The venture capital market is down substantially in both deals and dollars from 

the bubble of 1999-2001 (Figure 10). 

More importantly, the steady growth in 

deals and dollars that existed in the late 

1990s has not resumed. The venture 

capital markets have been flat for nearly 

a decade since the bubble burst. However, venture capital is also about 30 

percent below pre-recession levels in the 

number of deals and dollars.

What is the status of the initial public 

offering market?

While the number of initial public offerings (IPOs) has risen since 2008, the 

2000s could be considered a lost decade 

of IPOs; their number and value relative to the 1990s declined significantly 

(Figure 11). The IPO market has been on 

a roller coaster ride over the past two decades; a healthy IPO market is probably 

in the range of 250-350 deals per year, 

a level which has not been seen since 

2000. The trends in aggregate proceeds 

seem to mirror the trends in the number 

of IPOs although one could argue that 

dollars have lagged listings by a few 

years (Figure 11).

What is the condition of the angel capital

market?

Accredited investors, also known as 

angels, are investors who are qualified 

based on federal securities laws. The angel market was down in 2008 and 2009, 

but was revived in 2010 with increases 

of 14 percent in dollars invested and 8.2 

percent in the number of entrepreneurial ventures that received angel funding. But the angel market for seed and 

startup capital continues to contract as 

angels shift their preference to laterstage investments (post-seed/startup 

investments).10

How did the downturn affect business 

lending by large and small banks?

Large bank lending tends to follow 

the business cycle while smaller bank 

lending tends to be relatively steady. 

Banks with $50 billion or more in assets 

had solid increases in their commercial 

and industrial lending (outstanding) 

from 2003 to 2008 and had declines in 

2009 and 2010 because of the downturn 

(Figure 12). Most other bank sizes had 

relatively flat lending trends during this 

time period, with the exception of the 

10. University of New Hampshire, Whittemore School of Business and Economics, 

Center for Venture Research.

smallest banks. Lending at these banks 

(with less than $100 million in assets) 

has been in a long-term declining trend. 

While smaller banks might be seen as 

a shock absorber for small business 

financing during a downturn (since their 

lending held steady), their minimal 

growth in lending over nearly a decade could also be an indicator of their 

waning ability to be a small business 

resource.

What is the approval rate of small 

business loans? 

In the first quarter of 2010, Biz2Credit 

reports that slightly less than half of 

all small business loans were approved 

(www.biz2credit.com).

Government financing

What are SBA loans? 

SBA loans are government-backed loans 

available through commercial lenders 

which follow SBA’s guidelines. Except 

for the disaster loan program (www.sba.

gov/taxonomy/term/99), the SBA does 

not make direct loans to small businesses. SBA works with lenders to provide 

a partial guarantee for loans. In essence, 

SBA acts like a co-signer for small 

businesses who often lack collateral or 

a credit history. SBA’s partial guarantee 

reduces the risks for lenders, increases 

lending to small business, and allows 

small businesses to expand economic 

activity. From a policy perspective, 

SBA’s costs for such programs are loan 

Figure 10. Venture Capital

0

1,500

3,000

1995 1997 1999 2001 2003 2005 2007 2009 2011

Number of Deals

0

10

20

30

1995 1997 1999 2001 2003 2005 2007 2009 2011

Billions of Dollars Invested

Source: Office of Advocacy, U.S. Small Business Administration from data

provided by PricewaterhouseCoopers/National Venture Capital Association 

using Thomson Reuter data.

Figure 11. Initial Public Offerings

0

10

20

30

40

50

60

70

0

100

200

300

400

500

600

700

800

1985 1990 1995 2000 2005 2010

Billions of

Dollars

Number of

IPOs

Number of IPOs

Aggregate Proceeds ($)

Source: Office of Advocacy, U.S. Small Business Administration from data

provided by Prof. Jay R. Ritter, University of Florida.
Office of Advocacy Page 6 September 2011

losses minus fees, not the entire amount 

that SBA guarantees, as loans are to be 

repaid. For more information about SBA 

loan programs, see www.sba.gov/category/navigation-structure/loans-grants/

small-business-loans. 

How has the business cycle affected SBA 

loans? 

While the economic downturn has substantially affected the number of SBA 

loans, the dollar amount has changed 

less. In some ways SBA loans are a 

shock absorber in times when credit 

is tight, but even this program is not 

immune to the economics of decreased 

loan demand in the peak and nadir of 

a downturn. Making the data difficult 

to interpret is the fact that SBA guarantees and fees have changed over the 

years; this creates various pullbacks and 

surges in the SBA loan program such as 

the spike in lending at the end of 2010 

(Figure 13).

Can a small business obtain financing 

after a natural disaster?

Depending on the viability of the small 

business in the aftermath of a natural 

disaster, the SBA may be able to make 

a direct low-interest, long-term loan to 

repair physical and economic damage 

caused by a declared disaster. For details 

see www.sba.gov/category/navigationstructure/loans-grants/small-businessloans/disaster-loans. 

What are Small Business Investment 

Companies and whom do they fund?

Small Business Investment Companies 

(SBICs) are privately owned and managed investment funds, licensed and 

regulated by SBA. SBICs combine their 

own capital with SBA-guaranteed funds 

to make equity and debt investments in 

qualifying small businesses.

Small businesses can seek funds 

from SBICs at different stages of development, but note that at the beginning 

of the decade SBICs were more likely to 

fund startups, and have shifted to mature 

companies in recent years (Figure 14). 

Are there other federal government 

programs for small businesses?

Yes, one such program is the Department of Agriculture’s B&I Guaranteed 

Loan Program, whose structure is 

similar to SBA loan guarantees. For 

details see www.rurdev.usda.gov/rbs/

busp/b&i_gar.htm. The Department of 

Treasury’s Community Development 

Financial Institutions Fund also helps 

promote access to capital in urban and 

rural low-income communities (www.

cdfifund.gov).

Two additional programs, Small 

Business Innovation Research (SBIR) 

and Small Business Technology Tranfer 

(STTR), offer research and development grants and contract opportunities 

targeted to small businesses.These are 

Figure 12. Commercial and Industrial Loans 

Outstanding By Bank Asset Size

0

50

100

150

200

250

300

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Billions of dollars

Less than $100 million $100 million to $499.9 million

$500 million to $999.9 million $1 billion to $9.9 billion

$10 billion to $49.9 billion $50 billion or more

Source: Office of Advocacy, U.S. Small Business Administration from data

provided by the Federal Reserve Board CRA data.

Figure 13. SBA Loans

0

5,000

10,000

1995 1997 1999 2001 2003 2005 2007 2009 2011

Number of 7(a) Loans

Number of 504 Loans

Source: U.S. Small Business Administration.

0

2

4

6

995 19971 1999 2001 2003 2005 20092007 2011

Billions

of dollars

7(a) Loans

504 Loans

Figure 14. SBIC Funding by Age of Firm 

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Billions of 

dollars

Under 3 Years 3 to 6 Years

6 to 10 Years Over 10 Years

Source: U.S. Small Business Administration.

Figure 15. Number of Lending Institutions

0

30,000

60,000

90,000

1994 1999 2004 2009

Branches

Banks

Source: Office of Advocacy, U.S. Small Business Administration from data

provided by the FDIC.
Office of Advocacy Page 7 September 2011

perhaps the best sources of risk capital available to fund the development 

of promising new technologies. SBA 

does not administer awards, but has the 

responsibility for directing the participating agencies in the administration of 

the program.11

Policy issues

How has the Sarbanes–Oxley Act of 2002 

affected small businesses?

The Sarbanes–Oxley Act mainly applies 

to publicly traded companies with a public float of $75 million and above. Most 

small businesses are privately held or 

below this threshold, but the law could 

require them to be audited if they are 

suppliers to publicly traded companies. 

While certain small businesses are subject to the law, the overall small business

impact is unclear and is likely to remain 

so until sufficient data becomes available to evaluate. 

How has bank consolidation affected 

small businesses?

Bank consolidation affects small business loan markets differently depending 

on the degree of competition in these 

markets. Proving how this affected small

business lending is difficult because of 

the uncertainty in developing a scenario 

where the banks would not have merged 

at such high rates. And research has 

shown that the availability of credit to 

most small firms has not been adversely 

affected by large bank mergers and 

acquisitions.12 The number of lending 

institutions has declined almost 50 per11. Federal agencies with annual research 

and development budgets exceeding $100 million are required to allocate a portion of their 

R&D budget to these programs. Currently, 11 

federal agencies participate in the program: the 

Departments of Agriculture, Defense, Education, Energy, Health and Human Services, 

Homeland Security, and Transportation; the 

Department of Commerce’s National Institute 

of Standards and Technology and National 

Oceanic and Atmospheric Administration; 

Environmental Protection Agency; National 

Aeronautics and Space Administration; and 

National Science Foundation

12. Charles Ou, Banking Consolidation and 

Small Business Lending: A Review of Recent 

Research, Office of Advocacy, March 2005.

cent in the past two decades (Figure 15). 

A separate, encouraging trend is that the 

number of bank branches has increased 

by almost two-thirds during the same 

period, providing more opportunities for 

small businesses to maintain local banking relationships. 

Research and data 

sources

Where can I obtain small business data 

on financing? 

The U.S. Census Bureau’s Statistical 

Abstract of the United States is a good 

starting point for summary financing 

statistics (www.census.gov/compendia/

statab/cats/banking_finance_insurance.

html). Additionally, data aggregators such as the Federal Reserve Bank 

of St. Louis’s FRED (http://research.

stlouisfed.org/fred2) and the Federal 

Government’s Data.Gov (www.data.

gov) can in some cases provide one-stop 

data shopping. However, much of the 

data discussed in the Stat Abstract is not 

related to small business, so most researchers will have to access microdata 

(i.e., records for individual businesses 

sans personal information) and/or aggregated business data from the following 

sources.

The business financing data sources 

which contain microdata are:

• The Kauffman Firm Survey or 

KFS (Kauffman Foundation, www.

kauffman.org/kfs); 

• EDGAR, the Securities and 

Exchange Commission’s database of 

publicly traded companies (www.sec.

gov/edgar.shtml); 

• The Panel Study of Entrepreneurial Dynamics (www.psed.isr.umich.edu/

psed); and 

• The defunct Survey of Small Business Finances or SSBF (Federal Reserve 

Board, www.federalreserve.gov/pubs/

oss/oss3/nssbftoc.htm). 

• Note that the Survey of Consumer 

Finances also contains limited small 

business financing data (Federal Reserve 

Board, www.federalreserve.gov/pubs/

oss/oss2/scfindex.html).

KFS followed about 5,000 startups 

in 2004 to 2009 with plans to follow them through 2011. EDGAR has 

filing information on publicly traded 

companies. PSED contains about 800 

businesses followed from 1998 to 2000 

with three follow-ups up to 2006. SSBF 

contains about 4,000 data points for 

the years, 1987, 1993, 1998, and 2003. 

These micro datasets contain a wealth of 

variables and are useful in determining 

how various business types are financed 

and, in some cases, could allow the 

researcher an opportunity to show their 

impact on the firm.

Aggregated financing figures 

contain limited variables but are helpful in showing financing trends through 

historical data. Data sources publishing 

aggregate business financing figures 

include: 

• The Senior Loan Officer Survey 

(SLOS, Federal Reserve Board, quarterly, www.federalreserve.gov/boarddocs/

snloansurvey); 

• Call Reports (Federal Deposit 

Insurance Corporation, quarterly, https://

cdr.ffiec.gov/public);

• Community Reinvestment Act 

filings (Federal Financial Institutions 

Examination Council, annual, www.

ffiec.gov/cra/craproducts.htm);

• Initial public offerings (Prof. Jay 

Ritter, University of Florida, http://bear.

warrington.ufl.edu/ritter/ipodata.htm);

• Venture capital statistics (PricewaterhouseCoopers/National Venture 

Capital Association using Thomson 

Reuter data, annual and quarterly, www.

nvca.org);

• Survey of Business Owners (U.S. 

Census Bureau, quinquennial, www.

census.gov/econ/sbo/02/cbsof.html); and 

• Small Business Loan data 

(U.S. Small Business Administration, 

weekly, www.sba.gov/category/lendernavigation/lender-loan-data).

Some sources, such as the Flow of 

Funds report, include small businesses 

but they are overwhelmed by data 

for large businesses (Federal Reserve 

Board, quarterly, www.federalreserve.

gov/releases/z1/default.htm). 

Although the Office of Advocacy 

does not endorse them, a few commercial subscription data sources are available and contain microdata. These can 

be used to gather small business finance 

information for individual companies or 

aggregate figures. 
Office of Advocacy Page 8 September 2011

These sources include:

 • ABI/Inform (www.proquest.

com/en-US/catalogs/databases/detail/

abi_inform.shtml);

• Center for Research in Security 

Prices (www.crsp.com); 

• Compustat (www.compustat.com/

compustat_data); 

• D&B (www.dnb.com); 

• Experian (www.experian.com); 

and 

• Hoover’s (www.hoovers.com). 

Unanswered questions 

Frequently asked questions that remain 

unanswered.

Some questions remain very hard to 

answer, primarily because of a lack of 

data. They include: 

What is the default rate of small 

business loans? 

Is there a “valley of death” or “capi

tal chasm,” i.e., a middle level of financ

ing that is a barrier to growing firms? 

How much capital do small businesses receive from finance companies?

How do small businesses spend the 

financing funds they receive?

How many small business owners 

have personal guarantees on their loans?

What dollar amount of small business loans do banks charge off each yea

because of nonperformance?

What is small businesses’ creditwor

thiness, how does it compare to large 

firms’ creditworthiness and how is this 

affected by the business cycle?

Additional Publications

Small Business in Focus: Finance.

U.S. Small Business Administration, 

Office of Advocacy, www.sba.gov/sites/

default/files/09finfocus_0.pdf; 

“Financial Services Used by Small 

Businesses: Evidence from the 2003 

Survey of Small Business Finances” 

by Traci L. Mach and John D.Wolken. 

Federal Reserve Board, Federal Reserve

Bulletin, October 2006; 

“Women and Men Entrepreneurs: 

Different Relationships to Bootstrap 

Finance” by Lynn Neeley and Howard 

Van Auken. Journal of Developmental 

Entrepreneurship, 2010. 

“Five Unique Loan Sources,” NFIB

www.nfib.com/business-resources/business-resources-item?cmsid=49178. 

Glossary

Angel investor. An individual or 

accredited investor who provides early 

stage funding, and are known to invest 

their own money rather than that of an 

institution.

Bootstrapping/bootstrap financing. The actions of a startup to 

minimize expenses and build cash flow, 

thereby reducing or eliminating the nee

for outside investment.

Crowd funding. (Sometimes called

crowd financing or crowd-sourced capital.) A collective cooperation of people 

who network and pool their money and 

- resources together, usually via the Inter-

- net, to support efforts initiated by other 

organizations. While peer-to-peer lending typically focuses on one individual 

lending to another, crowd funding—as 

its name implies—aims to reach a funding goal by aggregating many small 

investors. 

Factoring. A financial transaction 

whereby a business sells its accounts 

r receivable (i.e., invoices) to a third 

party (called a factor) at a discount in 

- exchange for immediate money with 

which to finance continued business 

operations.

Loans outstanding. The unpaid 

balance on any term loan, installment, 

revolving or credit card debt on which 

interest is charged.

Mezzanine financing. A hybrid of 

debt and equity financing that is typically used to finance the expansion of 

existing companies—the debt capital 

gives the lender the rights to convert to 

an ownership or equity interest in the 

company if the loan is not paid back on 

time and in full. Mezzanine debt is typically senior to original equity invested 

in the company, but junior to any bank 

financing. In essence, the mezzanine financing fills in the gap between the first

mortgage held by a bank and the equity 

contributed by the principal owners of 

the business. 

d 

Peer-to-peer (P2P) lending. A 

lending arrangement in which individuals with little or no collateral seek loans 

from ordinary people looking to lend 

(via an online social lending marketplace/network); lenders compete with 

each other to make loans, often resulting 

in lower rates for the borrowers.

Small Business Investment Company (SBIC). A company licensed by 

the Small Business Administration to 

receive government capital in the form 

of debt or equity to use in private equity 

investing.

Small Business Innovation 

Research program (SBIR). A federal 

program awarding research and development funds to small businesses to 

develop and commercialize new technologies. 

Small Business Technology Transfer (STTR). A federal program fostering 

innovation by funding small business 

research and development and developing public/private partnerships among 

small businesses and nonprofit research 

institutions.

Trade credit. A business-to-business arrangement in which a supplier 

provides goods and services at one point 

in time and collects the charges at a 

later point. Put another way, receiving a 

discount for paying early is equivalent to 

being charged interest for paying later.

Vendor financing. A loan from one 

company to another which is used to 

buy goods from the company providing 

the loan.

Venture Capital. A segment of the 

private equity industry often investing 

in high risk/high growth companies with 

pooled funds, sometimes from large 

institutions. 

About the Office of Advocacy

The SBA’s Office of Advocacy was 

created by Congress in 1976. Part of 

the office’s mission includes conducting policy studies and economic 

research on issues of concern to 

small businesses. The office also 

publishes data on small firm characteristics and contributions. For further data and research information, 

visit the Office of Advocacy’s website at www.sba.gov/advocacy/847.