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00000174-c556-d691-a376-cdd69ef90000WKSU undertakes a year-long examination of entrepreneurship in Northeast Ohio with a 360-degree look at business creation in the region and examine the resources available to start-ups, the opportunities, and pitfalls in the local business climate. The project includes long-form features as part of WKSU's ongoing Exploradio series as well as entrepreneurship-themed news reports.00000174-c556-d691-a376-cdd69efb0000The Entrepreneurship Beat is produced with generous support from the Burton D. Morgan Foundation. Burton D. Morgan Foundation champions the entrepreneurial spirit, contributes to a robust entrepreneurial ecosystem, and leads in the burgeoning field of entrepreneurship education. Read more about the project HERE.

Cleveland Fed Study Shows a Tight Credit Market for Small Businesses

photo of The Cover of the report on microbusinesses from the Federal Reserve Bank of Cleveland

New business startup rates in Ohio and across the U.S. remain low despite a growing economy. The latest study from the Federal Reserve Bank of Cleveland offers one explanation for the trend. 

The Cleveland Fed study shows that, all things being equal, small businesses are less likely to receive financing. One reason is that lenders want the higher returns they get from lending to larger businesses, according to Cleveland Fed senior policy analyst Ann Marie Wiersch.

“We also know from these other sources that banks may find this type of lending – this really small-dollar lending – tends to be less profitable," says Wiersch.

Wiersch says the funding gap holds even for businesses that are similar credit risks.

"If we look at firms’ credit risk and group small businesses by their credit scores, we find that even among firms with similar credit scores, the larger the business, the more likely it is that they’ll receive funding. So, larger businesses with good credit scores are more likely to receive funding than micro-businesses with good credit scores."

The tight credit market means micro-businesses, those with fewer than five employees, often turn to less appealing options like online lenders. Wiersch says they’re also likely to dip into the personal funds of the company’s owner when facing financial challenges.