United States startups struggle to find sufficient financing

Paterniano Del Favero
Agosto 9, 2017

A number of startups turn to online lenders for their financing needs, which are often modest, yet they are the least satisfied with borrowing from these types of lenders, according to a report released Tuesday by the Federal Reserve Bank of NY.

The "startups" that drive USA job growth and productivity struggle to finance their businesses relative to more established peers with the same credit risk, according to a Federal Reserve survey published on Tuesday. Seventy-two percent of startup firms between zero and two years old and 69 percent of startups three to five years old said they faced financial challenges in the past year, compared with 56 percent of more mature firms over five years old.

"These findings are particularly salient for the United States macroeconomy because startups account for 34 percent of all USA employer firms, for nearly all net new job creation and for almost 20 percent of gross job creation", the New York Fed said, citing outside research. For these companies to continue growing, they need to be able to access financing - and some are having trouble finding it.

Startup firms - those between zero and five years old that have more than one and fewer than 500 employees - face greater financing challenges than more mature businesses, according to a survey released today by the Federal Reserve.

"This disparity remained even when startups had comparable credit risk levels to mature applicants", the report said.

"It is connected to failure rate absolutely". Those with low credit risk had the most success applying to small banks for credit (78%), while medium- and high-credit-risk startups found the most success with online lenders (45%).

Half of startups fail within five years of launching.

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