Small Business Lending Statistics and Trends

1. 29% of small businesses fail because they run out of capital. 
2. 43% of small businesses applied for a loan last year. 
3. At 66%, the approval rate is highest for institutional lenders than for any other type of lending entity.
4. At 85%, the approval rate for merchant cash advances is the highest of all types of small business funding. 
5. Only 48% of small businesses overall have their financing needs met. 
6. 9% of small businesses received no capital after applying for a loan.
7. 14% of small businesses only received a portion of their requested funds after applying for a loan.
8. The average small business bank loan amount is $633,000.
9. The average SBA loan amount is $107,000.
10. 32% of small business applicants turned to online lenders last year.
11. 70% of small businesses have outstanding debt.
12. 56% of small businesses apply for funding to expand their business, pursue a new opportunity, or acquire business assets.
13. 36% of small businesses that were denied at least some of the funding they requested were denied because of their credit score.
14. 57% of small businesses loan applicants sought $100,000 or less.

Small business lending statistics offer valuable insight into the state of small business as a whole. Generally speaking, the habits and trends that small business lending statistics indicate help paint a broader picture of how small businesses and small business lenders alike are approaching their finances. 

Even if you’re not considering taking on a small business loan right this minute, it’s valuable to take a data-centric look at what’s going on with small business lending. As such, we’ve compiled 14 of the freshest and most eye-opening small business lending statistics so that you can get an idea of how the industry is doing right now:

First, consider why small business lending exists in the first place. Though many small businesses seek capital to finance exciting opportunities, still others apply for small business loans to bridge financial gaps. 

In fact, running out of capital is the second most common reason that small businesses fail. 29% of small businesses that fail do so for this reason. 

Almost half (42%) fail because there’s no market need for their products or services, which can also translate into a capital shortage.

Other reasons for failure include:

• 23% failed because they didn’t have the right team
• 19% were outcompeted.
• 18% failed because of pricing and cost issues.
• 17% failed because of a poor product offering. [1]

It’s no surprise, then, that almost half of small businesses applied for a loan last year. According to the Federal Reserve’s Small Business Credit Survey, 43% of small businesses submitted an application to a small business lender last year. [2]

Biz2Credit’s Small Business Lending Indexes have found that institutional lenders—like pension funds and insurance companies, for instance—consistently have the highest small business lending approval rates. They hover around 66%. 

Other small business lending entities aren’t far behind, though:

• Alternative lenders have a 56.8% approval rate.
• Small banks have a 50.1% approval rate.
• Credit unions have a 39.9% approval rate.
• Big banks have a 27.7% approval rate. [2]

No surprise here: Merchant cash advances offer the highest approval rates of all forms of small business debt financing. 85% of small businesses that apply for a merchant cash advance get approved. 

However, you might be surprised at how the remaining forms of small business loans compare:

• Auto and equipment loans have an 80% approval rate. 
• Business lines of credit have a 73% approval rate. 
• Home equity lines of credit have a 70% approval rate. 
• Mortgages have a 69% approval rate. 
• Traditional business loans have a 67% approval rate. 
• Personal loans have a 55% approval rate. 
• SBA loans or lines of credit have a 52% approval rate. [2]

Zoomed out, only 48% of small businesses have access to all of the financing they need. This 48% includes the 20% of small businesses that qualified for all of the financing they needed after applying for a small business loan, plus the 28% of small businesses that didn’t apply for financing because they had sufficient capital. 

The remaining 52% of small businesses that don’t have their financing needs confirmedly met consist of:

• Those that apply and receive no financing
• Those that apply and only receive a portion of requested financing
• Those that don’t apply because they’re debt averse
• Those that don’t apply because they’re discouraged [2]

Of all small businesses, just 9% went through the process of applying for a small business, only to receive no capital at all. The odds are higher for small businesses to receive all the funding they request—20%—than to receive none at all. [2]

On the other hand, there is also a possibility of small businesses applying for financing and only qualifying for a portion of their requested loan amounts. 14% of small businesses went through the process of applying for a small business loan and received a portion of the financing they needed. [2]

So, at 34% versus 9%, the odds are in your favor to receive at least some financing as a result of the small business loan application process.

The reason that banks—both big and small—hesitate to provide small business loans is that they’re not as profitable. Big business loans and small business loans typically cost the bank the same amount to administer, but small business loans generally make them less money. 

As a result, the average small business bank loan is abnormally large—$633,000. [3]

On the other hand, SBA loans, which are backed by the Small Business Administration, carry much less risk for banks that participate in the SBA lending program. As a result, they seem to be more willing to perform small business lending in smaller amounts, as evidenced by the average SBA loan amount of $107,000. [3]

Last year, 32% of small businesses that applied for funding did so with an online lender. This small business lending statistic has grown substantially—up from just 19%—over the past three years. 

And this growth means that online lenders are making gains on more traditional lenders: 49% of small businesses apply for loans from large banks and 44% of small businesses apply for loans from small banks. [2]

Surprisingly enough, almost three-quarters of all small businesses have outstanding debt. The Federal Reserve found that 70% of small employers have some form of unpaid debt. That said, most small businesses with outstanding debt have a balance of less than $100,000. 17% of small businesses have $1 to $25,000 in debt, and 21% have $25,000 to $100,000 in debt. [2]

In contrast to the stigma that casts small business funding as a last resort for failing businesses, the Federal reserve found that 56% of small businesses apply for funding to expand their business, pursue a new opportunity, or acquire assets. [2]

The most common reason for small businesses being denied at least some financing is their credit score. At 36% of denied applicants, this is the most cited reason. However, many factors can come into play when a small business lender denies applicants’ requests. For instance, 35% of denied applicants had too much debt already and 33% had insufficient credit history, which are both factors that play a role in overall credit score. [2]

Nonetheless, most small businesses that apply for financing aren’t asking for much—57% of small business loan applications sought $100,000 or less in funding. Even more, 20% sought less than $25,000 and only 8% sought more than a million. [2]

Now that you’re familiar with all of the ins, outs, ups, and downs of the statistics on small business lending, what are your next steps? Well, if you’re a small business owner considering applying for a loan, be sure to base your decisions off the numbers. Small businesses all over the US are applying for and receiving funding and using it to grow their business. And the chances of your securing at least some of the funding you need to execute that project, purchase that new equipment, or hire that game-changing employee are in your favor.

References:

1. https://www.fundera.com/blog/what-percentage-of-small-businesses-fail
2. https://www.fedsmallbusiness.org/medialibrary/fedsmallbusiness/files/2019/sbcs-employer-firms-report.pdf
3. https://www.fundera.com/business-loans/guides/average-small-business-loan-amount

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