Small businesses worried about the immediate difficulty of repaying a loan may want to look past the short term. That's because new research has found that there are a number of long-term benefits for small businesses that receive funding and financing.
First and foremost, startups that received funding were more likely to survive, the researchers found. In fact, businesses that received financing were more than 40 percent more likely to survive than other businesses.
"Receiving a loan increases the probability of survival by 44 percentage points, which is an enormous effect," said Mark Garmaise, co-author of the report and an associate professor at the University of California's Anderson School of Management. "Loan provision also increases firm revenues and employment."
Businesses with loans also experienced nearly 73 percent higher sales growth, said Garmaise, who conducted the research with Cesare Fracassi and Shimon Kogan of the McCombs School of Business at the University of Texas Austin and Gabriel Natividad of the New York University Stern School of Business. Those businesses with loans were also able to double the number of employees at their companies.
To come up with those findings, the researchers looked at 5,400 applicants for loans from micro-lender Accion Texas. The data was collected from 2006 to 2011.
"It is exciting to have independent verification of what we have always known in our hearts and experienced to be true: enterprising small business owners will succeed if given access to credit and opportunity," said Janie Barrera, president and CEO of Accion Texas.
The research was a part of the paper "How Much Does Credit Matter for Entrepreneurial Success in the United States?"