Press Release

Federal Reserve Bank of New York Releases Report on Experiences of Nonemployer Small Businesses

Despite Most Firms Being Primary Sources of Income for their Owners, 55% Were Not Profitable; Data Reveal Racial Disparities in Financing Access
August 14, 2019

NEW YORK - The Federal Reserve Bank of New York today issued the 2019 Small Business Credit Survey Report on Nonemployer Firms, which examines the business conditions and the credit environment of small businesses with no employees other than the business’s owners. The report is based on the Small Business Credit Survey that was fielded in 2018. Nonemployer firms can include gig workers, startups that are planning to hire employees, and mature businesses that rely on contract workers as their workforce, among others.

“Nonemployer firms – which represent 81% of all small businesses – are an increasingly important part of our economy, and today’s report highlights how their performance has a real impact on American households,” said Claire Kramer Mills, assistant vice president at the New York Fed. “A majority of these firms struggle with making a profit, facing both rising costs and limits in passing on those costs to consumers. The data also underscore financing challenges for non-White business owners, echoing similar findings for employer firms.”

This year’s survey offers a deep dive into the characteristics, performance, prospects and challenges of nonemployer firms nationwide. Among the report’s top findings, the data reveal that 55% of these firms were either unprofitable or broke even in 2017, with a majority also reporting rising costs. The report also finds racial disparities in reported access to funding and highlights financing challenges faced by firms looking to hire employees in the near future.

Nonemployer firms employ – either as a source of primary or supplemental income – 17% of the American workforce. The Fed’s Small Business Credit Survey Report on Nonemployer Firms seeks to provide policymakers and the general public with a unique, data-driven snapshot of the nature of these firms, as well as the business and financing dynamics they face.

Key findings can be found in the Nonemployer Firms Report's executive summary. These findings include:

Firm Characteristics:

  • For nearly two-thirds (63%) of nonemployers, the business serves as the primary source of income for one or more owners. This is more common when the primary decision maker has less than a Bachelor’s degree than when he or she has at least a Bachelor’s degree.
  • One-fifth of nonemployer firms were started because the owner lacked other employment options.

Profitability, Revenue and Cost Challenges:

  • 34% of nonemployers operated at a loss at the end of 2017. Firms with non-Hispanic Black ownership were more likely to report losses.
  • A majority of nonemployers reported an increase in their input costs over the prior 12 months. However, only 34% of nonemployers increased the prices they charged, suggesting challenges with passing on these heightened costs.
  • Nearly three-quarters of nonemployers (72%) earn $100K or less in annual revenue. Lower annual revenues were more common among firms with younger decision makers, firms with non-Hispanic Black ownership, and women-owned firms.
  • 15% of nonemployers leverage an app or online marketplace for the majority of their sales. This is more common among firms with younger decision makers (18%) than with older decision makers (13%)

Financial Well-Being and Funding

  • Nearly two-thirds of nonemployers reported having financial challenges in the prior 12 months. This was more common for firms with non-Hispanic Black ownership (76%).
  • While 39% of all nonemployer firms reported their funding needs met, only 17% of firms with non-Hispanic Black ownership reported their funding needs were satisfied. 

Diversity of Work Among Nonemployers
As part of its deep-dive into the nonemployer landscape nationwide, the report includes a detailed analysis of five different categories of firms based on the nature of their work. This includes the firm’s role as a source of income for owners, hiring plans, years in operation, and whether it can be designated as contract work. Detailed definitions of these categories can be found in the Executive Summary section of the report.

Key findings among these various groups include:

  • Potential employers— nonemployers that plan to add employees in the next year — were more likely to report having experienced financial challenges in the last 12 months and were less likely to have had their funding needs met.
  • These potential employers were also more likely to be profitable than the average nonemployer firm but are also more likely to be medium/high credit risk (56% compared to 42% among all nonemployers).
  • Potential employers with more than two years in operation were the most likely to have prior debt outstanding compared to other nonemployer firms.

About the Small Business Credit Survey (SBCS)
The SBCS collects information about business performance, financing needs and choices and borrowing experiences of firms with fewer than 500 employees. Responses to the SBCS provide insight into the dynamics behind aggregate lending trends and about noteworthy segments of small businesses. The results are weighted to reflect the full population of small businesses in the United States. The SBCS is not a random sample; therefore, results should be analyzed with awareness of potential methodological biases.

The SBCS includes experiences of firms from across all 50 states and the District of Columbia through the joint efforts of the Federal Reserve Banks of New York, Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, Philadelphia, Richmond, San Francisco and St. Louis. The 2018 SBCS collected 12,455 responses in total, 5,841 of which were from nonemployer firms.

Desmond Lee
(212) 720-2416
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