SOURCE: Ewing Marion Kauffman Foundation

Ewing Marion Kauffman Foundation

April 04, 2011 08:00 ET

Lost Sales and Tighter Lending Restrictions Challenge Young Firms in Post-Recession Economy, According to Kauffman Study

Despite Difficulty Obtaining Bank Loans in 2009, Firms Increased Investments in Intangible Assets Aimed at Long-Term Sustainability, New Data Show

KANSAS CITY, MO--(Marketwire - April 4, 2011) - The world's largest longitudinal survey of new businesses identified a marked increase in 2009 in firms being denied bank loans or credit due to tougher lending restrictions -- and firms not applying for needed loans because they feared being denied.

Data released today in the sixth follow-up report of the Kauffman Firm Survey (KFS), a Ewing Marion Kauffman Foundation-sponsored study of new businesses founded in 2004 and tracked over their early years of existence, showed that 89 percent of firms that were denied loans in 2009 felt that banks' heightened requirements played a role in their denials. Twenty-one percent of surveyed firms had chosen not to apply for loans for fear of being declined, and 5 percent also refrained from seeking external equity financing for this reason.

As in 2008, young firms continued to cite slow and lost sales as their biggest challenge (44 percent), with unpredictable business conditions ranking second (22 percent). However, problems with customer payments were cited by 13 percent of firms -- up from just 2 percent in 2008. Falling real estate values, inability to obtain credit, and the cost and/or terms or credit were less frequently cited.

About half of the young firms surveyed made new investments in their businesses through debt financing in 2009, and less than one-quarter made new equity investments -- an 8 percent decline in equity investing from 2008. In addition, less than 8 percent of surveyed firms made financial injections of more than $100,000 in debt financing, compared with 10 percent in 2008.

"These firms clearly continue to feel the effects of the financial crisis in terms of lost sales and inability to obtain needed funding," said Robert E. Litan, vice president of research and policy at the Kauffman Foundation. "To promote job creation and strengthen the economy, entrepreneurs must be able access financial capital to expand investments in R&D and other growth strategies."

Find the full study on the Kauffman Foundation website.

About the Kauffman Firm Survey
The KFS fills a void in valuable data collection on young U.S. businesses, providing an understanding of how businesses are organized and operate in their early years, and shedding light on survival and growth indicators. Its baseline study started with a cohort of 4,928 firms that began operations in 2004. This group of companies is tracked annually, and principals are asked an extensive set of detailed questions that cover a range of topics, including the founders' backgrounds, their sources and amounts of financing, firm strategies and innovations, and outcomes such as sales, profits, and survival. The project has an additional two years of data collection planned. At the end of the project, the KFS will contain data from 2004 to 2011.

About the Kauffman Foundation
The Ewing Marion Kauffman Foundation is a private nonpartisan foundation that works to harness the power of entrepreneurship and innovation to grow economies and improve human welfare. Through its research and other initiatives, the Kauffman Foundation aims to open young people's eyes to the possibility of entrepreneurship, promote entrepreneurship education, raise awareness of entrepreneurship-friendly policies, and find alternative pathways for the commercialization of new knowledge and technologies. In addition, the Foundation focuses on initiatives in the Kansas City region to advance students' math and science skills, and improve the educational achievement of urban students, including the Ewing Marion Kauffman School, a college preparatory charter school for middle and high school students set to open in 2011. Founded by late entrepreneur and philanthropist Ewing Marion Kauffman, the Foundation is based in Kansas City, Mo. and has approximately $2 billion in assets. For more information, visit www.kauffman.org, and follow the Foundation on www.twitter.com/kauffmanfdn and www.facebook.com/kauffmanfdn.

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