Banks dominate the financing space for small and middle-market firms that raise capital, reflecting in part the comfort level most businesses feel with their borrowing rates, according to a new survey.

The Milken Institute and the National Center for the Middle Market, co-authors of the survey, found that close to half of firms with revenue of $10 million to $1 billion have used a bank loan to raise capital in the past three years, and roughly one-third of small businesses rely on bank loans.

After bank debt, the most popular financing option was debt issued in a private offering, with nondebt options such as equity preferred by very few firms. Less than one-third of firms were aware of nontraditional capital sources other than private equity.

The survey used a sample of 636 business owners and C-suite executives to gauge how small and middle-market firms raise capital. A perhaps surprising number (32%) have not raised capital in the past three years and approximately 40% do not anticipate raising outside capital in the next three years.

Of those firms that favor bank loans, 53% indicated that their borrowing costs are around the prevailing market rate, with a further 28% believing that they pay less than market rate. More than three-quarters of respondents considering a bank loan cited strong previous relationships with the bank as a reason for pursuing that option.

Only 5% of small and midsize businesses surveyed have used U.S. Small Business Administration programs within the last three years. Reasons for not participating include a difficult or bureaucratic process, lack of awareness, and onerous program terms and requirements.

As far as future capital-raising, just 19% of small and midsize businesses intend to take on additional debt to fund expansion in the coming year. Forty-four percent said they planned to finance growth with cash on hand, followed by existing credit facilities (31%).

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