white paper 2014 summary – state of sme finance in the united

TradeUp, January 2014 1

White Paper

2014 Summary – State of SME Finance in the

United States

Aseem Grover and Kati Suominen*

January 2014

___________

* Aseem Grover is MBA Candidate at the UCLA Anderson School of Management; Kati Suominen is

Founder and CEO of TradeUp Capital Fund.


Executive Summary

Small and medium-sized enterprises (SMEs), firms with fewer than 500 employees, are the

backbone of U.S. economy. They make up 99 percent of all firms, employ over 50 percent of

private sector employees, and generate 65 percent of net new private sector jobs. SMEs account

for over half of U.S. non-farm GDP, and represent 98 percent of all U.S. exporters and 34

percent of U.S. export revenue.

To thrive, SMEs need access to credit and cash flow. Credit conditions for U.S. SMEs

deteriorated in the wake of the financial crisis, and are expected to continue depressed as Basel

III capital adequacy requirements come into effect in 2015. Early-stage companies seeking

equity finance have also faced challenges, as venture capital is increasingly focused on later-

stage companies and available only to a handful of firms.

What is the state of SME finance in the United States today, five years after the financial crisis?

This TradeUp white paper provides answers. We review trends in lending and equity financing

to SMEs, discuss emerging financing sources for SMEs, and assess the future of SME finance in

light of the rise of alternative, online lenders and crowdfunding. We will also analyze the

specific financing issues faced by SMEs that seek growth through exports.

The summary highlights of this report are as follows:

Overall, financing for SMEs appears to be recovering from the immediate post-recession

years. However, the more traditional sources of SME capital – banks for loans and VCs

for early-stage funding – are focusing on larger and less nascent companies. A number of

instances and new delivery methods are taking their place, from online micro- and small

business lenders to supply chains finance programs, angel investors, and crowdfunding

platforms.

Bank lending to SMEs has improved, but has yet to return to pre-crisis levels. In June

2013, the loan balances for commercial and industrial (C&I) loans of $1 million or less

stood at $288.7 billion, $47 billion below June 2008.

Federal government sources have played a complementary and to an extent

countercyclical role during the past few years in SME lending. In FY 2013, SBA

supported $29.6 billion in lending to small businesses, about the levels of the prior two

years. The Export-Import Bank supported export credit insurances and export working

capital for SMEs at $5.2 billion in 2013, somewhat below 2011-12 authorizations.

The burgeoning market of online lenders has yet to be analyzed fully, but the success of

several platforms indicates a new, strong, and relatively affordable source for financing

particularly for small firms that lack access to sufficient bank credit.

Expansion-sand Late-stage investments together accounted for $13.4 billion of VC

investments through Q1-Q3 of 2013. Seed- and Early-Stage investments attracted 46


percent less investments during the same time period amounting to a total of $7.2 billion.

The Software industry continues to garner the most VC dollars in the United States, while

Silicon Valley continues to dominate the US VC investments by geography, leading the

pack with 42 percent investments in 2013. Internationally, Israel and United States

remain the hotbeds of innovation with the highest VC spending as a percent of GDP

among the OECD countries in 2012.

Angel investment is recovering and has become a strong complement to VC financing. In

the first two quarters of 2013, angels invested a total of $9.7 billion, an increase of 5.2

percent over the first half of 2012 and 5 percent increase form 2007.

Global crowdfunding volume nearly doubled in 2012 to $2.7 billion, of which over one-

half, or $1.6 billion, was in North America. Crowdfunding is expected to exceed $5

billion in 2013.

As the U.S. economy recovers, 2014 appears to become a big year for alternative lenders and

investors on the online and crowdfunding spaces, and see their expansion also to mobile

platforms. However, bank financing to SMEs is expected to continue subdued as Basel III capital

adequacy requirements come into effect in 2015. Because banks will have to hold additional cash

in reserve to meet the terms of Basel III, they will have less money to lend compared to pre-crisis

levels, which is expected to have a disproportionately negative effect on SME financing

opportunities. This however will open up opportunities for new business models to accommodate

the recovering financing demands by American SMEs.


2014 Summary – State of SME Finance in the United States

Introduction

Small and medium-sized enterprises (SMEs), firms with fewer than 500 employees, are the

backbone of U.S. economy and employment. They make up 99 percent of all firms, employ over

50 percent of private sector employees, and generate 65 percent of net new private sector jobs.

America’s 28 million SMEs account for over half of U.S. non-farm GDP. SMEs are also more

inclined to export than are large firms. While U.S. SMEs’ export participation is quite limited

compared to other advanced nations, with 5 percent of all SMEs engaging in exports, SME

exporters represent 98 percent of all U.S. exporters and 34 percent of U.S. export revenue.

To grow and contribute to the U.S. economy and exports, SMEs need access to free cash flow

and credit. Indeed, financing is widely found to be the single most robust determinant of firm

growth.1 However, small firms consistently report higher financing hurdles than large enterprises

given their small size, limited assets, and general inability to raise funds through credit markets

or publicly traded equity.2 Given that SMEs tend to have greater volatility in earnings and

growth than do larger companies, they are seen as riskier investments, and thus subject to higher

cost of capital.3 In addition, with limited staff and time, SMEs have high opportunity costs to

cultivate relationships with lenders, or to diversify these relationships so as to shop around for

the best deal.

Credit conditions for U.S. SMEs deteriorated in the wake of the financial crisis, and are expected

to continue depressed as regulatory environment tightens and as Basel III capital adequacy

requirements enter into effect in 2015. Because banks will have to hold additional cash in reserve

to meet the terms of Basel III, they will have less money to lend compared to pre-crisis levels.

These new standards are expected to have a disproportionately negative effect on SME financing

opportunities.

Early-stage companies seeking equity finance have also faced challenges. Venture capital is

increasingly focused on later-stage companies and available only to a handful of firms. Yet at the

same time, angel investors have assumed a greater role in start-up capital, and crowdfunding is

poised to add significantly to, if not transform, start-up finance.

The purpose of this annual update is to take stock of SME finance in the United States by reviewing

trends in lending and equity financing to SMEs in 2000-2013, discuss emerging financing sources

for SMEs, and assess the future of SME finance in light of Basel III and other regulatory changes.

We will also analyze the specific financing issues faced by SMEs that seek growth through exports.

The first section reviews of importance of capital for SMEs and for SME exporters. Section two

assesses lending to SMEs in the past several years, highlighting two newer trends, the rise of online

lending platforms and supply chains finance. Section three focuses on venture capital transactions.

Section four turns to angel investment, and section five discusses the rise of crowdfunding. Section

six concludes.


1. Importance of Capital to SMEs’ Growth and Trade

Financing is widely seen as the key driver of SMEs’ growth and exports alike. Capital is the oxygen

that enables the firm to market their goods and services, expand production capacity, and sustain

cash flow. At the same time, SMEs are widely viewed as having more limited access to capital

than large companies. Given their typically higher volatility and less extensive financial track

record, SMEs are generally more credit-constrained than are large firms. SMEs tend to have fewer

external financing sources available to them and are typically much more dependent on banks than

are larger firms, which can raise capital through such measures as issuance of bonds, commercial

paper, or publicly traded equity.

Further, it takes typically as much work, if not more, for lenders to assess the creditworthiness of

a small borrower as a large one, particularly as smaller firms tend to have less financial history

and fewer formal financial tracking processes. These relatively high processing costs are reflected

in the financing costs on SMEs. In addition, with limited staff and time, SMEs have high

opportunity costs to cultivate relationships with lenders, or to diversify these relationships so as to

shop around for the best deal. In a rigorous global study on access to capital that covers 10,000

firms from 80 countries, including the United States, the probability that a small firm lists financing

as a major obstacle is 39 percent compared with 36 percent for medium-size firms and 32 percent

for large firms.4

Recent surveys reflect the central place of capital for SMEs’ work and the challenges in accessing

financing. When asked to name the most severe obstacles to growth in a recent survey by Federal

Reserve Board of New York, 49 percent of 670 surveyed SMEs (of up to 499 employees) listed

access to capital as the leading challenge (figure 1). No other challenge such as taxes, finding

employees, or regulations, was as widely cited. Unsurprisingly, access to capital varies with the

firm’s performance: 66 percent of SMEs operating at a loss listed access to capital as a growth

challenge, whereas only 36 percent of profitable SMEs cited access to capital as a challenge to

future growth.

The external funding obstacles reflected in the main sources of financing for SMEs are not bank

loans or external funding, but business earnings, personal savings, and credit cards (figure 2). The

most typical need is to secure cash flow and fund day-to-day operations (cited as the reason for

seeking financing among 40 percent of respondents, followed by inventory (12 percent) and plan,

equipment, and vehicle investment (10 percent).

These results are echoed in the online lender OnDeck’s October 2013 survey, where access to

credit was cited as the top concern among small businesses, ahead of such challenges as growing

sales and taxes. They are also similar to international survey results: in a World Bank survey,

SMEs across emerging markets and developing countries listed lack of financing as the second

most severe obstacle (after corruption), while large firms placed it fourth.5


Figure 1 – Growth Challenges among U.S. SMEs, 2013

Source: FRBNY Small Business Credit Survey, May 2013 (N=670)

Figure 2 – Primary Funding Sources for U.S. SMEs, 2013

Source: FRBNY Small Business Credit Survey, May 2013 (N=650)


1.1 Capital is Critical also for SME Exporters

U.S. SMEs are seeking growth through exports in record numbers. There is enormous latent

capacity just in the United States: only 300,000 of U.S. SMEs export. Recent surveys indicate that

three-quarters of current SME exporters and a near-quarter of non-exporters look to expand their

exports. For these SMEs, access to capital is key for setting up and expanding export-related

operations, offering competitive payment terms to foreign customers, developing new export

products and markets, and investing in production facilities, new capabilities and staff required for

exporting. Indeed, export activities generate additional financial needs for which exporting SMEs

need to identify and source capital:

Export entry involves high upfront sunk costs stemming from such activities as identifying

foreign customers and new export markets, creating distributor networks, and meeting

foreign product standards. These costs are proportionally much greater for SMEs than they

are for large firms. Prospective “born global” companies are particularly disadvantaged,

despite their exceptional potential for innovation and growth, as they have limited assets

available as collateral, and as equity financing is often available only for a select number

of firms.

Costs of each export transaction can be more onerous than those incurred in the domestic

market, such as higher shipping, logistics, and trade compliance costs. As an example,

cross-border shipping and delivery usually take 30-90 days longer to complete than do

domestic orders, with each day in transit adding to shipping costs.6 In addition, exporters

need sufficient resources to manage risks such as potential customer non-payment,

exchange rate instability, and cash flow problems.

Exporters need sufficient cushion and resources to manage risks such as potential customer

non-payment and exchange rate instability – all the while having to accommodate foreign

buyers, such as large foreign OEMs (original equipment manufacturers) that demand

payment terms that extend beyond the 60- and 90-day norm in the U.S. market.

Recent academic literature finds that firms that are credit constrained are less likely to export.7

Conversely, access to finance enhances firm’s exports and buoys SMEs’ exports in particular.8

In addition, exporting loosens firms’ credit constraint, for example by making companies more

productive and by playing a countercyclical role when domestic markets flail.9

Survey data show that inadequate financing constrains trade especially among SMEs, as they

tend to be more credit-constrained than large companies. In a 2010 U.S. International Trade

Commission survey of 2,349 SMEs and 849 large firms, 32 percent of SMEs in manufacturing

sectors and 46 percent of SMEs in services sectors cited obtaining financing as “burdensome” to

conducting cross-border trade. By contrast, only 10 percent of large manufacturing firms and 17

percent of large services firms shared this view.10 What is more, out of 19 hurdles, SME

manufacturers rated access to financing as the steepest hurdle to trade, while SMEs in service

sectors rated access to capital as the third hurdle to trade (figures 3-4).11


These data are echoed by surveys in other advanced markets. In a 2008 OECD survey of 230

SMEs, access to working capital was ranked as the greatest hurdle to trade, out of 47 hurdles.12

In a 2010 survey commissioned by the European Commission of nearly 9,500 European SMEs,

54 percent of SMEs viewed lack of capital as an “important barrier” to doing business in the EU

market and 44 percent to doing business in extra-EU markets. No other barrier (paperwork, laws

and regulations, lack of information on overseas markets, etc.) was considered as important.

Figure 3 - U.S. Manufacturing SMEs Cite Obtaining Financing as the Leading Impediment

to Engaging in Global Trade

Source: U.S. International Trade Commission (2010).

Figure 4 - U.S. Services SMEs View Obtaining Financing as the Third Leading Impediment

to Engaging in Global Trade

Source: U.S. International Trade Commission (2010).


2. Lending to SMEs: Alternative Sources Filling the Gap

The financing challenges faced by SMEs were compounded by the 2008-09 financial crisis,

which severely undermined SMEs’ credit conditions. Bank lending to SMEs has improved, but

has yet to return to pre-crisis levels. In June 2013, the loan balances for commercial and

industrial (C&I) loans of $1 million or less stood at $288.7 billion, $47 billion below June 2008

preceding the Great Recession (figure 5). The annual decline in small-business lending in 2008-

2012 has reversed, yet particularly the smallest of SMEs have trouble securing a loan, and loans

are not as substantive as they used to be. The total number of small business loans has been

increasing from 2009-2011 levels (figure 6), however the average loan size is still below 2010

levels.

Some of the causes behind the lowered lending are bank consolidation, which has reduced the

number of banks focused on the small business segment; and increased regulatory scrutiny that

has caused banks to tighten lending standards and secure more internal approvals, which in turn

has reduced the share of creditworthy borrowers and also increased bank’s fixed costs per loan,

making SME loans less attractive. 13 Recent research on the heightened supervision during and

after the 2008-09 recession finds that increased stringency can have a statistically significant

impact on total loans and loan capacity for some 20 quarters after the onset of the tighter

supervisory standards.14

Granted, banks are not the only bottleneck: small businesses have also been borrowing less in the

past few years’ lackluster economy, as weak earnings and economic uncertainty have translated

into subdued loan demand.15 In addition, collateral values have been low as real estate prices

have declined, curtailing the amount that small business owners can borrow. In a Wells

Fargo/Gallup quarterly survey of 600 small business owners with up to $20 million in annual

sales, the share of percentage of small business owners intending to increase capital investment

over the next 12 months fell between 2007 and 2013, from a high of 33 percent in Q2 of 2007 to

20 percent Q4 2012 and 24 percent in Q4 of 2013. The share of small business members of the

National Federation of Independent Businesses (NFIB) who said they borrowed once in the past

three months fell from 36 percent to 29 percent between January 2008 and June 2012, and was at

steady 30 percent in December 2013.

Frustrated by long processing times at credit unions, small business customers are gradually

going back to bigger national and regional banks for their financing needs. In 2012, the most

prolific U.S. SME lenders include American Express, First Citizen Bancshares and Wintrust

Financial (appendix I). Larger players such as Citizens, TD Bank, Union Bank, and Wells Fargo

are becoming increasingly active in small business lending. Yet approvals are hard to secure, in

part because small business financials have been weak. According to the November 2013

Biz2Credit Small Business Lending Index, the largest banks with over $10 billion in assets

approved only 17.4 percent of loan applications. Smaller, community banks are granting about

half of the loan applications.


Figure 5 - Loans to Small Businesses by FDIC-Insured Institutions in 2000 – 2013, by Loan

Size

Source: FDIC.

Figure 6 - Loans to Small Businesses by FDIC-Insured Institutions in 2000 – 2013, by

Number of Loans in Loan Size Category

Source: FDIC.


2.1 Small Business Administration Loans

SBA has played somewhat of a countercyclical role as bank lending to small business has dried

up. In FY 2013, SBA supported $29.6 billion in lending to small businesses, nearly at par with

SBA’s two record years of supporting $30.25 billion in small business loans in FY 2011 and

$30.5 in FY 2012 (figure 7). In total, the SBA supported 54,106 loans in 2013.16 Among others,

this included 7,700 “504” loans (totaling $11.7 billion), which provide small businesses with

long-term, fixed-rate financing to acquire real estate and major fixed assets; 682 CAPlines loans

at $500 million that provide working capital lines of credit to meet small businesses’ short-term

working capital needs; and 4,000 Small Loan Advantage (SLA) loans ($625 million) that are

under $350,000 loans targeting small businesses and entrepreneurs in underserved communities.

Figure 7 – SBA-Supported Loans to Small Businesses in 2010-2013 (7(a) and 504 loans in

millions of $, microloans in actual number)

Source: SBA Annual Report for FY 2013.

2.2 Export-Import Bank Guarantees and Instruments

The U.S. Export-Import Bank (Ex-Im) supports small business export transactions by offering

export credit insurance, working capital guarantees, and direct loans, particularly to SMEs’

foreign customers. In 2013, Ex-Im authorized a record 3,413 small business transactions, of

which the bulk, or 83.4 percent, were export credit insurances rather than working capital loan

guarantees (figure 8). Ex-Im authorizations supported $5.2 billion in small business loans, of

which 54 percent went towards export credit insurance and 35 percent towards working capital

loan guarantees (figure 9). Overall, in dollar terms, Ex-Im’s small business portfolio is about a

fifth of the total, even though small business transactions consistently make up over 80 percent

of transactions (figure 10). Ex-Im transactions overall support only a small share of U.S. exports,

typically 1-2 percent.


Figure 8 – Number of Ex-Im Bank-Supported Export-Related Loan Authorizations to

Small Businesses in 2000-2013

Source: Ex-Im Bank annual reports, 2000-2013.

Figure 9 – $ Value of Ex-Im Bank-Supported Export-Related Loan Authorizations to

Small Businesses in 2000-2013

Source: ExIm Bank annual reports, 2000-2013.


Figure 10 – ExIm Bank-Supported Export-Related Loan Authorizations to Small

Businesses in 2000-2013 as % of all Authorizations

Source: ExIm Bank annual reports, 2001-2013.

2.3 Perceptions of Loan Availability

The perceptions of small businesses and banks on availability of loans differ somewhat. In June

2012, the Federal Reserve Board of Governors asked loan officers to describe their current loan

standards “using the range between the tightest and easiest that lending standards at your bank

have been between 2005 and the present.”17 For non-syndicated loans to small firms with annual

sales of less than $50 million, 39.3 percent said that standards were tighter than the midpoint of

the range, while only 23 percent said they were easier than the midpoint of the range. However,

banks have recently viewed the lending conditions as having improved in the past two years

(figures 11-13).


Figure 11 - Net Percentage of Domestic Respondents Tightening Standards for C&I Loans,

1990-2013

Source: Federal Reserve Board.

Figure 12 - Net Percentage of Domestic Respondents Increasing Spreads of Loan Rates

over Banks' Cost of Funds



Figure 13 - Net Percentage of Domestic Respondents Reporting Stronger Demand for C&I

Loans


On the SME side, the majority still consider it harder to secure loans (figure 14) – which may

also help explain the recent years’ subdued borrowing. However, the ratio of those considering it

easier to secure loans to those seeing it harder is shrinking. At the end of 2013, a net of 7 percent

of small businesses saw the availability of loans as reduced, in contrast to some 15 percent in

early 2010.

A similar trend occurs in the Wells Fargo/Gallup Small Business Index: in Q4 of 2013, 27

percent of small businesses stated that obtaining credit in the past 12 months had been “very

difficult” or “somewhat difficult”, significantly down from 37 percent in Q1 of 2012, but still

higher than 13 percent at the start of 2008 (figure 15).

For export-driven companies, these trends are compounded by a profound lack of understanding

of financial instruments and government programs aimed at exporters. In a 2013 survey by the

National Small Business Association (NSBA), as many as 82 percent of small businesses already

engaged in exporting reported that their lending institution never discussed U.S. Export-Import

Bank products with them, and some 22 percent had never even heard of the Ex-Im Bank.18 Only

12 percent reported using an Ex-Im product to help finance their export activities, and just 5

percent had used Ex-Im financing through a commercial bank. In addition, a mere 3 percent had

made use of SBA’s export lending programs.


Figure 14 – SMEs’ Perceived Availability of Loans – Net Percent (“Easier” Minus

“Harder”) Compared to Three Months Ago

Source: NFIB Small Business Economic Trends Monthly Report, January 2014.

Figure 15 – SMEs’ Perceived Difficulty of Obtaining Credit in the Past 12 Months

Source: Wells Fargo and Gallup Small Business Survey Topline Quarter 4, 2013 (margin of error ± 4 percentage

points).


2.4 Remaking SME Finance: Rise of Online Nonbank Lenders

As traditional sources of small business credit have dried up, SMEs have turned to alternative

sources, first and foremost online to technology-enabled financing platforms that have

proliferated in the past few years. These platforms offer speed and higher odds of success than

traditional lenders, approving an estimated two-thirds of the loan applications they receive within

minutes or a few days. They also typically use a wider or a different set of criteria than do

traditional lenders to assess the borrower’s credit worthiness, such as analyzing the business

owners’ credit card payment records. In exchange for the speed and convenience, borrowers

typically pay a premium in the form of higher interest rates.

Select, high-growth online platforms for small business loans include such direct loan providers

as OnDeck that offers small business loans of up to $250,000 across industries, and

intermediaries such as Biz2Credit and Boefly that match small businesses to lenders across the

nation. There are non-profit models, such as microlender Accion. An additional source of

financing for small business is peer-to-peer lending platform such as LendingTree or Lending

Club, which target individuals instead of business borrowers. Small businesses have reportedly

used these platforms for small loans (typically up to $35,000 or so) to fund expansion or pay off

debt. Some peer-to-peer lenders, such as Dealstruck, have focused solely on the small business

market offering loans of $50,000-250,000 for up to 3 year terms with interest rates of 5-15

percent. Granted, all of these lenders require the businesses to meet certain criteria, such as cash

flow, profitability, certain amount of time in business, and so on.

In addition to these platforms offering a variety of financing instruments for an array of

businesses, there are specialized providers serving a defined clientele. For example, in the fall of

2013, Paypal started extending small business working capital loans to its merchants, and Google

also reportedly has plans to lend to small businesses. There are also new accounts receivable

companies extending financing against domestic and foreign receivables, and merchant cash

advance companies, such as Kabbage. New lending players such as Lighter Capital focuses on

high-growth software and tech firms, offering royalty-based loans that accommodate fluctuations

in the company’s cash flows.

Non-bank online lending accentuated in late-2013 during the government shutdown, which not

only brought SBA-backed lending to a halt, but also undercut non-SBA lending as the IRS was

closed and not verifying borrowers’ revenue figures. A notable longer-term trend favoring online

platforms is the growth in the number of entrepreneurs using mobile to apply for funding –

which is something that the non-traditional lending platforms are better-equipped to

accommodate than are traditional lenders. Credit unions in particular have yet to embrace online

let alone mobile platforms, and are as a result argued to lose countless opportunities.

Table 1 provides an illustrative list of various lenders and their focus. In addition to these has

also been loan-based crowdfunding platforms; these will be discussed below.


Table 1 – Illustrative List of Online Non-Bank SME Lenders

Provider Instruments Amounts Term Interest

rate Payment Sectors Website

OnDeck Loans - direct $5,000 -

$250,000

3 – 18

months

(average

6 - 9

months)

15% (avg) Daily

Over 700 different

industries, including

restaurants, retailers

and other service

providers

https://www.on

deck.com/

Biz2Credit

Array of loans, lines

of credit, and other

instruments - loan

request will be

matched to the

lending criteria of our

network of over

1,200+ lenders

$5,000 -

$1 million Varies Varies Varies

Various sectors and

segments (women,

veterans, etc.)

http://www.biz

2credit.com/

Boefly

Loans - loan request

will be matched to the

lending criteria of our

network of over

3,600+ lenders

Varies Varies

Platform

user fee

$249

(minimum)

Varies Typically franchisors http://www.boe

fly.com/

Accion Microloans Up to

$50,000

Up to 60

months

10.99-

15.99%,

closing

costs 5%,

$135

application

fee

Varies

Established and

emerging businesses;

start-ups; businesses

in food, beverage,

hospitality industries

http://www.acc

ionusa.org/

Dealstruck Peer-to-peer loans $50,000-

$250,000

Up to 3

years 5-15% Varies

Several:

manufacturing,

services, wholesale,

retail

https://www.de

alstruck.com

Kabbage

Cash advance to buy

inventory, equal

monthly transfers

$500-

$50,000 Flexible

2-10% in

the first 2

months, 1%

thereafter

Monthly Various https://www.ka

bbage.com/

Paypal Working capital loans

Max. 8

percent of

merchant's

annual

receipts,

up to

$20,000

Set fee as a

deduction

of 10-30%

of incoming

receipts

until paid -

estimated

as 4-12%

interest

Based on

receipts

Paypal merchants

(90,000 firms)

https://www.pa

ypal.com/weba

pps/workingca

pital/tour

Lighter

Capital Royalty-based loans

$25,000-

$500,000,

or 10-20

percent of

company's

annualize

d runrate

1-5 years

Percent of

monthly

top-line

revenue; up

to 25%

Monthly

Software, technology

and knowledge-

based companies

http://www.lig

htercapital.com

/

Accounts

Receivable

Financing

Accounts receivable

financing, including

overseas

N/A N/A 1-3% per

month Monthly Various

http://www.acc

ountsreceivable

financing.com/


2.5 Boosting SMEs’ Cash Flow: Rise of Supply Chain Finance

Supply Chain Finance (SCF) has existed for a long time. However, the credit constraints in the

wake of the financial crisis have made SCF increasingly attractive option for financing SME

suppliers in corporate value chain, as a means to enhance suppliers’ cash flow.

SCF is typically initiated by a large corporate buyer to reduce supplier risk. Large buyers

increasingly want better terms, such as a longer payment cycle, from their supplier. Yet meanwhile

these suppliers need to be paid so as to purchase new supplies and cover business expenses.

Typically, the SMEs make up for the gap in cash flow by borrowing against their accounts

receivable. However, the terms involved in this arrangement can be very taxing on the supplier’s

financial viability – which in turn poses a supplier risk to the buyer.

In order to preserve the supplier’s financial health, the buyer helps the SME supplier access more

affordable credit through a bank, or offers a sophisticated corporate solution that optimizes

payments among many participants in the supply chain. Using SCF, the corporate buyer is able to

pay SME suppliers faster, thus helping the SMEs improve cash-flow and secure financing at lower

cost. This in turn fuels the SMEs’ operations, making them more stable and reliable and thereby

reducing the large buyer’s supplier risk. The set-up is a win-win-win: buyers get terms extensions,

suppliers’ liquidity, and banks access to short-term commercial trade-related transactions.

According to several estimates, only a fraction of the need for global supply chain finance has as

yet been met. New firms have sprouted to specifically address this gap, such as PrimeRevenue,

which provides multi-bank supply chain finance, and Tradeshift, which enables businesses that

have invoiced a large enterprise to immediately access the money they are owed once the buyer

has confirmed its intention to pay.

Several governments, including U.S. government, have established supply chain finance initiatives

in order to incentivize uptake by corporate buyers and banks. Some initiatives are explicitly related

to exporters and indirect exporters. For example, in 2011, the U.S. Export-Import Bank approved

a $740 million program to offer guarantees for up to 90 percent of that capacity to support Boeing’s

U.S. suppliers (that are also indirect U.S. exporters and hence supported by Ex-Im Bank).19 The

initiative forms part of Ex-Im Bank’s Supply-Chain Finance Guarantee Program, which enables

suppliers to receive early payment of their accounts receivable that are due from participating

exporters, such as Boeing, Caterpillar, and Case Holland in exchange for a small discount fee that

is paid to the lender. Ex-Im Bank provides a 90 percent guarantee of the invoices while the lender

(Citibank for Boeing suppliers) bears 10 percent of the risk.

In the UK, the government reached an agreement in September 2013 with three dozen corporations

such as Rolls-Royce, Vodafone, and General Dynamics UK to boost supply chain finance. The

bank is notified by a large company that an invoice has been approved for payment; the bank is

then able to offer a 100 percent immediate advance to the supplier at lower interest rates, knowing

the invoice will ultimately be paid by the large company.


3. For Venture Capital, Bigger Is Better

The dot-com bubble of late 1990s saw venture capital spending in the United States reach its

peak in 2000 with total spending of more than $105 billion across 8,000 deals.20 After the dot-

com crash of 2000, the venture capital industry struggled to raise new funds, resulting in

decreased VC funding of $19 billion in 2003. VC funding increased at a compounded annual

growth rate of 13 percent until 2007, when the financial crisis and the ensuing economic

downturn stalled this growth in its track. Since 2009, the overall venture capital funding in the

United States has remained at a relatively steady level, and is reportedly picking up on the back

of declined investor interest in emerging markets.21

3.1 Stage of Development

The breakdown of venture capital investments by stage of development of has changed over the

last twelve years. Funding at the seed level continues to be smallest proportion of venture capital

funding in the United States (figure 15). Expansion-stage funding, which was the recipient of the

biggest proportion of VC investments has seen its share of total funding decline over the years.

Early and Later stage funding has steadily extracted bigger chunk of the total VC pie.

Figure 15 – U.S. Venture Funding by Stage of Development

Source: Money Tree report from PwC and NVCA.

Seed-stage investments that once touched $3.2bn during the peak of the dot-com bubble have

seen ups and downs over the last decade. While funding for seed stage investment improved as

the economy recovered during 2003-07, it has seen a gradual decline since the financial turmoil,

resulting in total number of deals in seed funding declining from 536 in 2008 to 143 at the end of


Q3 in 2013 (figure 16). Per the Money Tree report from PwC and NVCA, the average Seed deal

up until Q3 in 2013 was $3.5 million, up 21 percent from Q3 of 2012.

Early-stage dollar investments rose in 2011 to their highest level ($8.9 billion) since the dot-com

crash. This upward trend was visible in 2012, which saw the highest number of early stage deals

invested in by U.S. venture capitalists. In Q1-3 of 2013, early-stage deals received $6.8 billion.

The average early-stage deal up until Q3 in 2013 was $4.7 million, down 4.9 percent from Q3 of

2012.

Figure 16 - U.S. Venture Capital Seed / Early Stage Funding


Expansion-stage investments attracted the biggest piece of the pie in 2000, have decreased since

then and been at relatively steady levels since 2010 (figure 17). Overall, Expansion stage dollar

investments accounted for 32 percent of all venture investments in 2012, up 1.2 percent from the

previous year. The average expansion stage deal was $9.8 million in Q3 2013, identical to the

average expansion stage deal in 2012.

VC investments in later-stage deals have decreased almost 72 percent since 2008. In 2012, 22

percent of all venture deals were attributed to later-stage deals. The average later-stage deal was

$11.5 million in Q3 2013, up 9.7 percent from Q3 2012.


Figure 17 – U.S. Venture Capital Later / Expansion Stage Funding


3.2 Industry Analysis

High-Tech

Due to the less capital intensive nature of the business, the Software industry has traditionally

captured the highest VC dollars among the high-tech industries. The Software industry received

the largest investment in 2012 with $8.6 billion going into 1,369 deals, representing a 109

percent increase in dollars and 65 percent increase in deals since 2009 (figure 18). The

biotechnology industry received the second highest VC dollars in 2013 but the overall VC

dollars have stayed relatively flat declining only 3 percent since 2000. The medical device

industry has received the third largest investment from venture capitalists since 2005 peaking in

2007 with $2.7 billion.

The semiconductor industry has declined the most since the dot-com crash, recovering briefly

before tumbling again in 2009. A number of factors including uncertain global economy,

ongoing inventory overhang, and a shift from PCs to mobile devices caused a downward trend

for the semiconductor industry. The 2013 year-to-date (Q3) VC dollars invested declined 27

percent when compared with the first three quarters from 2009.


Figure 18 – U.S. High Tech Venture Capital Funding


Non-High Tech

Venture capital investment in non-high tech industries has traditionally been lower when

compared with the high tech industry. The media and entertainment industry VC funding, which

reached its lowest point in 2003, has recovered steadily since then increasing at a 13 percent

compounded annual growth rate from 2003-2012 (figure 19). The energy and industrial sector

which peaked in 2008 with dollar investments $4.6 billion declines 37 percent from 2008 to 2012

and continues decline in 2013 with only 165 deals closed by the end of third quarter. The

Consumer Products and Services sector has attracted the third largest share of investment since

2008. From a low of $157 million in VC dollar investments in 2003, VC investments increased

at a compounded annual growth rate of 27 percent to $1.3 billion in 2012.


Figure 19 – U.S. Non-High Tech Venture Capital Funding


Business Products and Services, Retailing and Distribution, and Healthcare services have seen

the most declines over the last decade. The Business Products and Services industry had its

highest share of VC investments since the dot-com crash in 2006, but has declined 74 percent in

year-to-date (Q3) dollar investments in 2013 when compared with the same time period in 2006.

The healthcare services sector saw robust growth in VC investments after the Affordable Care

Act was announced in 2009. VC investments have since declined 34 percent in dollar

investments and 19 percent in deals year-over-year during the first three quarters of 2013.

3.3 Region

VC dollars invested in the United States continue to be dominated by Silicon Valley. The

proportion of dollars being invested in Silicon Valley has increased from 32 percent in 2000 to

42 percent today (figure 20). While a distant second, New England region continues to hold

steady, with 11 percent of VC dollars invested in 2013 flowing through to this region. The New

York Metro region comes in a close third and has held steady attracting 8-10 percent dollars

invested over the last decade. VC investment in the southern California region of LA and Orange

County VC has been relatively flat at approximately 6 percent since the dot-com bubble era.

Interestingly, the southeastern region of United States that accounted for almost 8 percent VC

investment in 2000, today attracts only 4 percent of the total dollars invested in the United States.


Figure 20 - Proportion of Amount Invested by Region


3.4 Venture Capital Spending Comparison: U.S. vs. Other OECD Countries

Venture capital investments, representing the riskiest ownership in an entity, has accounted for a

very small fraction of the GDP for most countries. Among the OECD countries, Israel and

United States represented the highest VC spending as a percentage of GDP in 2012 (figure 21).

Notably, the two countries differ in VC spending split between early and late stage companies.

While early stage companies attracted 84 percent of total VC spending in Israel, only 32 percent

of VC spending in the United States went towards early stage firms.


Figure 21 - Venture Capital Investments as % of GDP – 2012

Source: OECD Entrepreneurship at a Glance 2013.

The harsh effects of the financial crisis of 2008 on VC spending were felt strongly by the OECD

countries. According to OECD data, VC spending in most countries remains significantly below

the 2007 levels (figure 22). Portugal and Spain, the two European countries embroiled in the

European debt crisis continue to attract the least amount of VC dollars spent in 2012. The United

States VC spending grew 19.7 percent from 2009 to 2012. However, this amount was still 16.4

percent lower than the 2007 level. Ireland, Luxembourg, and South Africa were the only three

OECD countries in 2012 to exceed the VC spending levels of 2007.


Figure 22 - Trends in Venture Capital Investments 2007 – 2012

Source: OECD Entrepreneurship at a Glance 2013.

4. Angels: Reaching a Par with VCs

As venture capital has moved to bigger deals, angels have filled the gap for startups. Angel

market has also recovered steadily since 2008. In the first two quarters of 2013, periods for

which data are available through the Center for Venture Research at the University of New

Hampshire, the angel investor market showed signs that a sustainable growth. Angels invested a

total of $9.7 billion, an increase of 5.2 percent over the first half of 2012 and 5 percent increase

from 2007 (figure 23).

A total of 28,590 ventures received angel funding in the first half of 2013, a 4.8 percent increase

from the first half of 2012, and the number of active investors was 134,895 individuals, up by 2.9

percent from the first half of 2012 (figure 24). The increase in total dollars and the matching

increase in total investments resulted in an average deal size of $337,850.

Much like VCs, angels too have migrated somewhat away from seed and start-up stage investing.

In the first half of 2013, only 38 percent of angel investments went in the seed and start-up stage

companies. This is positive for companies starting out, but also significantly below the pre-2008

peak of 55 percent, with angels having moved toward expansion and growth capital financings,

and positioning their investments for growth in 2014.

Still a relatively limited number of ventures received angel backing. In the first half of 2013, the

share of deals that angels’ invested in of all deals brought to angels was 21.5 percent, an increase

from the first half of 2012 (17.8 percent) and comparable to 2012 (21.3 percent) (figure 25).


Sectorally, software claims the largest share of angel investments, with 24 percent of total angel

investments in first half of 2013, followed by healthcare services/medical devices and equipment

(21 percent), industrial/energy (10 percent), retail (8 percent), biotech (8 percent) and IT Services

(6 percent) (figure 26). The consistently solid performance of the industrial/energy sector is

telling of angels’ growing interest in clean tech investing.

In the first half of 2013, women angels represented 18.2 percent of the angel market, and

women-owned ventures accounted for 15.9 percent of the entrepreneurs that are seeking angel

capital. 23.6 percent of these women entrepreneurs received angel investment in the first half of

2013, above the overall market acceptance rate. Minority angels made up 4.5 percent of angles

and minority-owned firms 8.5 percent of the entrepreneurs seeking angle investment, with an

acceptance rate of 14.7 percent, which lags behind the market yield rate. Angel investments

continue to contribute to job growth with the creation of 111,500 new jobs in the United States in

first half of 2013, or 3.9 jobs per angel investment.

Figure 23 – Angel Investments in 2002-2012, by amount invested and average deal size

Source: Center for Venture Research at the University of New Hampshire.


Figure 24 – Angel Investments in 2002-2012, by number of ventures financed and number

of angels


Figure 25 – Angel Investments in 2002-2012, by acceptance rate (deals financed over deals

brought to angels)



Figure 26 – Angel Investments in Q1-2 of 2013, by sector


5. Crowdfunding Is Coming to Equity Markets

Crowdfunding, which enables small companies to sell small amounts of equity to individual

investors, gained steam in 2013. While comprehensive data on crowdfunding has yet to be

collected, according to recent estimates, the global crowdfunding volume nearly doubled in 2012

to $2.7 billion, of which over one-half, or $1.6 billion, was in North America (figure 27).

Crowdfunding is expected to exceed $5 billion in 2013. Initially focused on creative,

philanthropic, and social endeavors, crowdfunding has more recently been applied to business

and entrepreneurial ventures, which currently make up approximately 17 percent of all

crowdfunding investments (figure 28).

As securities regulations have become more flexible in the United States and abroad,

crowdfunding is expanding from donation-, and reward-based models to lending- and equity-

based models. Several crowdfunding platforms have emerged, targeting specific stages and

sectors such as startups or consumer brands (for an illustrative list, please refer to:

http://anentrepreneuriallife.com/crowdfunding-sites-the-ultimate-list-for-entrepreneurs/).

The equity-based model in particular is to take center stage in the United States, after the passage

of the JOBS Act, which has approved general solicitation over the Internet. The two most

transformative pieces of the JOBS Act legislation are Titles II and III. Title II, which allows

companies raising capital to advertise and market their raise online, passed on September 23,

2013; Title III, which will allow non-accredited investors to make investments in exchange for

equity, is still pending. The equity-based models, which tend to favor larger financings, grew by

30 percent in 2011-2012; currently, some 42 percent of equity-based crowdfunding investments

are above $100,000 range (figure 29). The growth in lending volumes mainly stemmed from

crowdfunded micro-loans and community-driven loans to local SMEs.


Figure 27 - Growth in Worldwide Funding Volume, in Millions of Dollars - Research

Estimate

Source: Massolution

Figure 28 - Crowdfunding Performance by Investment Category, 2012

Source: Massolution.


Figure 29 - Funds Paid Out Per Equity-Based Project as %, 2011

Source: Massolution, based on 10 Crowdfunding Platforms.

6. Conclusion: What Lies Ahead for 2014?

Financing for SMEs appears to be recovering from the immediate post-recession years.

However, the more traditional sources of SME capital – banks for loans and VCs for early-stage

funding – are focusing on larger and less nascent companies. A number of instances and new

delivery methods are taking their place, from online micro- and small business lenders to supply

chains finance programs, angel investors, and crowdfunding platforms.

The summary highlights of this report are as follows:

Bank lending to SMEs has improved, but has yet to return to pre-crisis levels. In June

2013, the loan balances for commercial and industrial (C&I) loans of $1 million or less

stood at $288.7 billion, $47 billion below June 2008.

Federal government sources have played a complementary and to an extent

countercyclical role during the past few years in SME lending. In FY 2013, SBA

supported $29.6 billion in lending to small businesses, about the levels of the prior two

years. The Export-Import Bank supported export credit insurances and export working

capital for SMEs at $5.2 billion in 2013, somewhat below 2011-12 authorizations.

The burgeoning market of online lenders has yet to be analyzed fully, but the success of

several platforms indicates a new, strong, and relatively affordable source for financing

particularly for small firms that lack access to sufficient bank credit.


Expansion- and Late-stage investments together accounted for $13.4 billion of VC

investments through Q1-Q3 of 2013. Seed- and Early-Stage investments attracted 46

percent less investments during the same time period amounting to a total of $7.2 billion.

The Software industry continues to garner the most VC dollars in the United States, while

Silicon Valley continues to dominate the US VC investments by geography, leading the

pack with 42 percent investments in 2013. Internationally, Israel and United States

remain the hotbeds of innovation with the highest VC spending as a percent of GDP

among the OECD countries in 2012.

Angel investment is recovering and has become a strong complement to VC financing. In

the first two quarters of 2013, angels invested a total of $9.7 billion, an increase of 5.2

percent over the first half of 2012 and 5 percent increase form 2007.

Global crowdfunding volume nearly doubled in 2012 to $2.7 billion, of which over one-

half, or $1.6 billion, was in North America. Crowdfunding is expected to exceed $5

billion in 2013.

As the U.S. economy recovers, 2014 appears to become a big year for alternative lenders and

investors on the online and crowdfunding spaces, and see their expansion also to mobile

platforms. However, bank financing to SMEs is expected to continue subdued as Basel III capital

adequacy requirements come into effect in 2015. Because banks will have to hold additional cash

in reserve to meet the terms of Basel III, they will have less money to lend compared to pre-crisis

levels, which is expected to have a disproportionately negative effect on SME financing

opportunities. This however will open up opportunities for new business models to accommodate

the recovering financing demands by American SMEs.


APPENDIX I:

Small Business Lending of Large Lending Institutions Based on Call Report Data, June 2012

Nam

e o

f Lendin

g Institu

tion

HQ

Sta

teR

ank

TA

Ratio

1

TB

L

Ratio

1

Am

ount

($1,0

00)

Num

ber

Lender

Asset

Siz

e

Am

ount

($1,0

00)

Num

ber

Am

ount

($1,0

00)

Num

ber

CC

Am

ount/

TA

1

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

Am

erican E

xpre

ss C

o.

NY

1

0.2

38

1.0

00

16,3

50,0

38

3,6

03,2

26

>$50B

16,3

18,0

89

3,6

03,0

88

31,9

49

138

0.2

8

First

Citiz

ens B

anchare

sN

C

20.1

87

0.4

91

3,9

14,5

07

117,7

02

$10B

-$50B

3

78,3

94

105,0

81

3,5

36,1

13

12,6

21

.

Win

trust

Fin

ancia

l C

orp

.IL

3

0.1

69

0.3

84

2,8

42,7

93

136,8

01

$10B

-$50B

8

00,5

26

126,4

55

2,0

42,2

67

10,3

46

0

Zio

ns B

ancorp

UT

40.1

18

0.2

61

6,2

31,7

70

52,6

12

>

$50B

526,2

06

32,9

73

5,7

05,5

64

19,6

39

0

Synovu

s F

inancia

l C

orp

.G

A

50.1

62

0.3

81

4,2

27,1

68

22,6

75

$10B

-$50B

5

39,6

66

9,5

93

3,6

87,5

02

13,0

82

0.0

1

BB

&T C

orp

. N

C

60.0

53

0.2

53

9,4

08,7

32

506,8

79

>$50B

1

,922,3

93

473,4

49

7,4

86,3

39

33,4

30

0

FN

B C

orp

. P

A

70.1

28

0.4

16

1,4

75,5

06

25,0

11

$10B

-$50B

2

47,8

53

17,8

10

1,2

27,6

53

7,2

01

.

Capital O

ne F

inancia

l C

orp

.V

A

80.0

28

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9,1

05,7

26

2,9

14,5

73

>$50B

5

,872,6

01

2,9

00,0

77

3,2

33,1

25

14,4

96

0.2

5

Fulton F

inancia

l C

orp

. P

A

80.1

29

0.3

48

2,1

33,2

09

20,0

80

$10B

-$50B

1

87,6

52

9,9

09

1,9

45,5

57

10,1

71

.

Regio

ns F

inancia

l C

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L

10

0.0

61

0.2

19

7,3

86,9

70

63,3

94

>

$50B

1

,617,6

01

41,6

77

5,7

69,3

69

21,7

17

0.0

1

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Bancorp

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N

11

0.0

42

0.2

05

14,6

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61

870,9

31

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4

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56

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02

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75

0.0

5

First

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l G

rp.

NY

11

0.0

72

0.2

88

2,5

30,7

06

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30

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4

46,8

38

23,8

41

2,0

83,8

68

8,6

89

.

Lauritz

en C

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. N

E

13

0.0

71

0.3

37

1,1

42,0

96

101,9

41

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5

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.

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s Inc.

OH

13

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>

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635,7

57

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31

3,2

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89

14,2

01

0

Bancorp

south

Inc.

MS

15

0.1

25

0.4

04

1,6

46,1

69

15,8

82

$10B

-$50B

2

06,8

56

9,4

41

1,4

39,3

13

6,4

41

.

TC

F F

inancia

l C

orp

MN

16

0.0

94

0.3

70

1,6

76,0

64

19,8

23

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3

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63

11,2

40

1,3

75,2

01

8,5

83

0

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eta

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k*

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17

0.0

42

1.0

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1

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31

-

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JPM

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hase &

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18

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19

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19

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13,4

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2,8

36,5

51

11,5

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29

57,3

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0.0

6

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roup

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19

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62

9,0

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26

1,7

46,9

16

>$50B

5

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76

1,7

32,9

20

3,4

94,3

50

13,9

96

0.1

Popula

r P

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19

0.0

71

0.2

58

2,4

64,6

90

22,7

03

$10B

-$50B

1

64,6

82

11,8

09

2,3

00,0

08

10,8

94

0.0

3

Hancock H

old

ing C

om

pany

MS

19

0.0

92

0.2

99

1,7

75,4

10

18,7

06

$10B

-$50B

1

94,2

39

11,4

52

1,5

81,1

71

7,2

54

0

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T B

k C

orp

N

Y

22

0.0

68

0.1

78

5,5

60,4

91

56,1

51

>

$50B

1

,087,3

73

37,4

05

4,4

73,1

18

18,7

46

0

Bank o

f A

mer

Corp

N

C

23

0.0

20

0.1

82

31,0

42,1

81

3,2

77,2

74

>$50B

14,1

91,5

09

3,2

20,1

35

16,8

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72

57,1

39

0.0

7

Centr

al B

ancom

pany

MO

24

0.1

10

0.3

89

1,1

13,3

44

14,4

45

$10B

-$50B

1

48,8

00

10,1

13

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44

4,3

32

.

Arv

est

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rp.

AR

25

0.0

86

0.3

45

1,1

67,9

74

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01

$10B

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1

73,6

73

9,4

71

994,3

01

5,1

30

.

Com

pass B

k

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26

0.0

49

0.1

72

3,4

45,3

58

169,5

39

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613,8

69

158,5

33

2,8

31,4

89

11,0

06

0.0

1

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o &

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CA

27

0.0

29

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46

34,5

70,3

89

617,5

08

>$50B

8

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26,1

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107,4

11

0.0

1

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C F

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vc.

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up

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28

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36

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10,5

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220,2

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2

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80

8,4

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f The W

est

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29

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16

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19

>

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592,9

67

28,0

97

3,0

52,7

49

10,8

22

0

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O H

arr

is B

ank N

AIL

30

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42

0.2

01

3,8

49,4

39

46,8

87

>

$50B

424,4

04

33,0

66

3,4

25,0

35

13,8

21

0

All

Sm

all

Busin

ess L

endin

g(less t

han $

1 m

illio

n)

Mic

ro B

usin

ess L

endin

g(less t

han $

100,0

00)

Macro

Busin

ess L

endin

g($

100,0

00 -

$1

mill

ion)


Nam

e of

Len

ding

Inst

itutio

n

HQ

Sta

teR

ank

TA R

atio

1

TBL

Rat

io1

Am

ount

($1,

000)

Num

ber

Lend

er

Ass

et S

ize

Am

ount

($1,

000)

Num

ber

Am

ount

($1,

000)

Num

ber

CC

Am

ount

/TA

1

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

Um

pqua

HC

OR

31

0.11

00.

255

1,26

4,03

5

9,

351

$10B

-$50

B

97

,474

4,76

4

1,

166,

561

4,

587

.

T D

Bk

NA

DE

32

0.03

00.

192

6,19

7,76

9

56

,364

>

$50B

607,

176

34

,709

5,

590,

593

21

,655

0

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len/

Fro

st B

kr

TX

330.

067

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TA

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(1)

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(3)

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(5)

(6)

(7)

(8)

(9)

(10)

(11)

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*The b

ank w

as form

erly k

now

n a

s G

E M

oney B

ank,

and w

as r

enam

ed in O

cto

ber

2012.

1 T

A =

tota

l dom

estic a

ssets

held

by t

he lender;

TB

L =

tota

l busin

ess loans h

eld

by t

he lender;

and C

C=

cre

dit c

ard

loans h

eld

by t

he lender.

Sourc

e:

U.S

. S

mall

Busin

ess A

dm

inis

tration,

Offi

ce o

f A

dvo

cacy,

from

Call

Report

data

.

All

Sm

all

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ess L

endin

g(less t

han $

1 m

illio

n)

Mic

ro B

usin

ess L

endin

g(less t

han $

100,0

00)

Macro

Busin

ess L

endin

g($

100,0

00 -

$1

mill

ion)


References

1 Ayyagari, Meghana, Aslı Demirgüç-Kunt and Vojislav Maksimovic, 2006. “How Important Are Financing

Constraints? The Role of Finance in the Business Environment.” World Bank Policy Research Working Paper 3820.

See also, Zia, Bilal. 2007. “Export Incentives, Financial Constraints, and the (Mis)allocation of Credit: Micro-level

Evidence from Subsidized Export Loans.” Journal of Financial Economics, forthcoming; and Banerjee, Abhijit V.

and Esther Duflo. 2004. “Do Firms Want to Borrow More? Testing Credit Constraints Using a Directed Lending

Program.” CEPR Discussion Paper 4681.

2 Joe Peek, “The Impact of Credit Availability on Small Business Exporters” (Washington: Small Business

Administration Office of Advocacy, 2013).

3 Beck, Thorsten, Aslı Demirgüç-Kunt, Luc Laeven and Vojislav Maksimovic. 2006. “The Determinants of Financing

Obstacles.” Journal of International Money and Finance, 25, 932-52.

4 Beck, Thorsten, Aslı Demirgüç-Kunt, Luc Laeven and Vojislav Maksimovic. 2006. “The Determinants of Financing

Obstacles,” Journal of International Money and Finance, 25, 932-52.

5 World Bank Group, Enterprise Surveys Database, 2010.; http://www.enterprisesurveys.org; “World Business

Environment Survey” (WBES) of more than 10,000 firms in 80 countries.

6 Manova, Kalina. 2013. “Credit Constraints, Heterogeneous Firms, and International Trade.” The Review of

Economic Studies 80: 711-744.

7 See, for example, Bellone, Flora, Patrick Mussoy, Lionel Nestaz, and Stefano Schiavox. 2010. “Financial

Constraints and Firm Export Behaviour,” The World Economy 33, 3: 347-373; and Wagner, Joachim, 2012. “Credit

constraints and exports: Evidence for German manufacturing enterprises.” Working Paper Series in Economics and

Institutions of Innovation 286, Royal Institute of Technology, CESIS - Centre of Excellence for Science and

Innovation Studies.

8 Molina, Danielken and Monica Roa. 2013. “Export Margins and External Financing: Evidence from Colombia.”

Mimeo (October).

9 Campa J.M., Shaver J.M. 2002. “Exporting and capital investment: on the strategic behavior of exporters,”

Discussion Paper No. 469, IESE Business School, University of Navarra.

10 U.S. International Trade Commission. 2010. “Small and Medium-Sized Enterprises: Characteristics and

Performance.” Investigation No. 332-510. Publication 4189 (November)

<http://www.usitc.gov/publications/332/pub4189.pdf>. These findings are echoed by the 2012 GE Capital and Ohio

State University survey of SMEs with $10million to $1 billion in revenue. Although this survey did not specifically

ask firms about financing for cross-border trade, it did find that 55 percent of SMEs reported a lack of adequate

access to capital. See Fisher College of Business, Ohio State University, and GE Capital. 2011. “The Market That

Moves America: Insights, Perspectives, and Opportunities from Middle Market Companies”

<http://www.middlemarketcenter.org/wp-content/uploads/2012/01/The_Market_that_Moves_America4.pdf>.

11 U.S. International Trade Commission. 2010. “Small and Medium-Sized Enterprises: Characteristics and

Performance.” Investigation No. 332-510. Publication 4189 (November)

<http://www.usitc.gov/publications/332/pub4189.pdf>.

12 OECD. 2008. Removing Barriers to SME Access to International Markets. Paris: OECD.

13 Ann Marie Wiersch and Scott Shane, “Why Small Business Lending Isn’t What It Used to Be,” Economic

Commentary /Cleveland Federal Reserve, 14 August 2013

http://www.clevelandfed.org/research/commentary/2013/2013-10.cfm.

http://www.clevelandfed.org/research/commentary/2013/2013-10.cfm


14 Bassett, William F. Seung Jung Lee, and Thomas W. Spiller. 2012. “Estimating Changes in Supervisory

Standards and Their Economic Effects,” Federal Reserve Board, Divisions of Research and Statistics and Monetary

Affairs, Finance and Economics Discussion Series, no. 2012-55.

15 Ann Marie Wiersch and Scott Shane, “Why Small Business Lending Isn’t What It Used to Be,” Economic

Commentary /Cleveland Federal Reserve, 14 August 2013

http://www.clevelandfed.org/research/commentary/2013/2013-10.cfm.

16 See “SBA Lending Activity in FY 2013 Shows SBA Continuing to Help Small Businesses Grow and Create

Jobs,” SBA, 29 October 2013 <http://www.sba.gov/content/sba-lending-activity-fy-2013-shows-sba-continuing-

help-small-businesses-grow-and-create-jobs>

17 Federal Reserve Board of Governors. 2012. “Senior Loan Officer Opinion Survey on Bank Lending Practices at

Selected Branches and Agencies of Foreign Banks in the United States“ (July) < http://www.federalreserve.gov/boarddocs/snloansurvey/201208/table2.htm>.

18 National Small Business Association and Small Business Exporters Association, “2013 Small Business Exporting

Survey,” <www.nsba.biz/wp-content/uploads/2013/06/Exporting-Survey-2013.pdf> (October 16, 2013).

19 “Ex-Im Bank announces $740 million supply-chain program with The Boeing Company,” Export-Import Bank of

the United States Press Release, 17 February 2012.

20 MoneyTree™ Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association

(NVCA), based on data provided by Thomson Reuters.

21 “Investor Confidence in U.S. Grows as Sentiment Declines in Emerging Markets,” Press Release on the 2013

Global Venture Capital Survey, Deloitte and National Venture Capital Association, 14 August 2013.

http://www.clevelandfed.org/research/commentary/2013/2013-10.cfm

http://www.sba.gov/content/sba-lending-activity-fy-2013-shows-sba-continuing-help-small-businesses-grow-and-create-jobs

http://www.sba.gov/content/sba-lending-activity-fy-2013-shows-sba-continuing-help-small-businesses-grow-and-create-jobs

white paper 2014 summary – state of sme finance in the united

Documents