New Study Finds Small Business Lending is Crucial to Startup Success

Accion Texas Inc.’s Lending Data Helps Researchers Prove That Credit Greatly Increases Entrepreneurial Survival Rates, Sales Growth and Job Creation in the United States

SAN ANTONIO — Gearing up for Small Business Week June 17 to June 21, the nation’s largest nonprofit microlender, Accion Texas Inc., announces the remarkable outcome of a recent academic study: “Startups receiving funding are dramatically more likely to survive, enjoy higher revenues and create more jobs.”

That’s the conclusion of four university professors who have published their results in a research paper titled “How Much Does Credit Matter for Entrepreneurial Success in the United States?”

“Obtaining a loan has a strong effect on the future financial position of startups,” wrote the researchers after analyzing client data collected by Accion Texas from 2006 through 2011.

“Receiving a loan increases the probability of survival by 44 percentage points, which is an enormous effect,” said Mark J. Garmaise, associate professor at the University of California’s Anderson School of Management. “Loan provision also increases firm revenues and employment.”

Garmaise worked with Cesare Fracassi and Shimon Kogan, both assistant professors of finance at the McCombs School of Business at the University of Texas Austin; and Gabriel Natividad, assistant professor of management and organizations at the New York University Stern School of Business.

The researchers also analyzed survival rates and loan provision for specific groups to determine who might benefit the most from receiving a small business loan.

“We find that the biggest benefits go to applicants with at least some college and those without previous senior management experience at another firm. The latter group probably can secure financing from other sources and therefore the Accion Texas loan has a smaller impact on their eventual success,” the report concluded.

The four researchers studied data on 5,400 Accion Texas applicants by accessing the organization’s proprietary Microloan Management Services™ - the only small business loan underwriting platform of its kind in the United States.

Key findings include:

• Startup capital plays a significant role in the future financial position of small businesses
• Startups receiving capital are dramatically more likely to survive, have stronger revenue and create jobs
• A startup loan helps small businesses build assets while growing a business
• Financing increased the probability of a firm’s survival by 44 percent
• Borrowers who received a loan from Accion Texas had an overall survival rate of 74 percent
• Borrowers in the study experienced 72.9 percent sales growth (compared to 41 percent for non-borrowers)
• Borrowers were able to double their number of employees

Accion Texas President and CEO Janie Barrera praised the researchers, saying these results prove quantifiably what she and her organization witness every day. “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,” Barrera said.

The full study can be downloaded from this web address: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2157707

About Accion Texas Inc.

Accion Texas Inc. is a nonprofit, multi-state micro- and small business lender that helps new and existing entrepreneurs successfully grow their businesses. Through affordable lending and business development services, Accion Texas Inc. is committed to empowering diverse individuals and small businesses that have limited access to traditional sources of capital.

Accion Texas Inc. manages the nation’s largest microloan portfolio and operates 20 offices in eight states: Alabama, Arkansas, Kentucky, Louisiana, Mississippi, Missouri, Tennessee and Texas. The organization is the largest member of the Accion U.S. Network. Since its founding in 1994, Accion Texas Inc. has disbursed more than 13,400 loans totaling $143 million and helped to create or retain more than 10,500 jobs.