Stephanie Rosoff and Ellie Terry
Federal Reserve Bank of Atlanta
Community and Economic Development Department
Discussion Paper 2015-3
July 2015

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Businesses without employees—or nonemployer firms—make up the majority of small businesses in the United States, but little is known about their financial lives, including their business financing needs and experiences. In this paper, we discuss findings from data on nonemployer firms in the 2014 Joint Small Business Credit Survey, a new annual survey by the Federal Reserve Banks of Atlanta, Cleveland, New York, and Philadelphia.

Our results indicate that nonemployers use financing less than employers do. They hold less debt and apply for financing at lower rates, even when controlling for revenue size. The lower demand for credit appears to be a combination of a preference to avoid debt and a perception that nonemployers will be denied if they apply. Nonemployer applicants have more difficulty being approved and are likelier to seek financing from online lenders than are employer firms. We believe that the higher denial rates that nonemployers experience are at least partially explained by the differing attributes of the group. Nonemployers are younger, likelier to cite their poor credit score as a reason for denial, and less likely to be turning a profit than are employer firms.

JEL classification: L25, M13, G20

Key words: Firm performance, new firms, start-ups, financial institutions and services

The authors would like to thank the Federal Reserve Banks of Atlanta, Cleveland, New York and Philadelphia for administering the Joint Small Business Credit Survey. In addition, the authors thank Brian Headd, Karen Leone de Nie, and Claire Kramer Mills for their thoughtful feedback. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta, the Federal Reserve Bank of New York, or the Federal Reserve System. Any remaining errors are the authors' responsibility.

Comments to the authors are welcome at and