Delving into the world of business loans can seem like a daunting task, filled with complexities and uncertainties. However, by carefully examining the latest statistics on small business financing, valuable insights can be gained to help navigate the funding landscape and make informed decisions.
In this article, we will decode percentage approval rates, average loan amounts, and alternative finance routes and unpack the impact that COVID-19 has had to arm you with invaluable knowledge about business loans. These are invaluable business loan statistics that no astute entrepreneur should overlook!
- Traditional banks have lower approval rates for small business loans compared to alternative lenders, highlighting the importance of considering various financing options.
- The COVID-19 pandemic has made it harder for small businesses to obtain loans, decreasing capital availability and funding opportunities. Racial disparities in accessing loans during this time have further exacerbated challenges faced by minority-owned businesses.
- Small business owners have alternative sources of financing available, such as business credit cards, invoice financing, merchant cash advances, crowdfunding, and peer-to-peer lending.
Small Business Loan Application Statistics
According to the latest data from the UK’s Financial Conduct Authority (FCA), the percentage of small businesses that applied for a loan in 2021 was 18%, with an average loan amount of £50,000. This figure has been relatively stable over the past few years, slightly increasing from 16% in 2019. The approval rate for small business loan applications in the UK is around 50%.
Reasons Small Businesses Apply for Loans
Small businesses apply for loans to expand their business, pursue new opportunities, or acquire business assets. This is because they want to grow and develop their business, invest in new opportunities, and expand their operations. Business loans provide them with the necessary capital to purchase equipment, finance business assets, and cover operating expenses. Easy access to funds is a significant benefit of business loans, making it easier for small businesses to achieve their target goals and drive growth.
Percentage of Small Businesses Applied for a Loan Last Year
According to the Federal Reserve’s Small Business Credit Survey, only 37% of small businesses applied for a loan in 2020. This number represents a significant decline from 43% in 2019. Also, 34% of small businesses applied for a loan in 2021. This decline can be related to several factors, including:
- Economic Uncertainty: The COVID-19 pandemic caused widespread economic uncertainty, making many small businesses hesitate to take on additional debt.
- Government Assistance Programs: The Paycheck Protection Program (PPP) and other government assistance programs provided much-needed financial support for small businesses, reducing their reliance on traditional loans.
- Lending Standards: Lenders tightened their lending standards in response to the pandemic, making it more difficult for small businesses to qualify for loans.
Here’s a brief overview in table format:
|Percentage of Small Businesses that Applied for a Loan
Approval Rate for Small Business Loans
The approval rate for small business loans can significantly vary depending on the type of lender. On average, small banks approve 49% of SBA loans, while large banks only approve about 25%. However, alternative lenders have a much higher approval rate of 56.5%.
|Type of Lender
These statistics highlight the need for small businesses to carefully consider their choice of lender. While traditional banks may seem to be the obvious choice, it’s clear that alternative lenders are often more willing to support small businesses. However, traditional lenders often offer lower interest rates and longer repayment terms than alternative lenders.
Average Loan Amount for Small Businesses
The average loan amount for small businesses varies quite significantly. This can depend on a number of factors, such as the size of the business, its profitability, and the purpose of the loan. However, recent statistics suggest an overall average loan amount of $633,000. This figure may be skewed slightly due to larger loans issued by national banks, often higher than those offered by smaller lenders.
However, it’s worth noting that not all small businesses borrow this much. Many small enterprises typically borrow an average of just $107,000 to meet their financing needs. This can be due to smaller businesses not requiring as much capital, or it may be a strategic decision to minimise debt.
|Type of Lender
|Average Loan Amount
|All business loans
|Small business loans
|Small enterprises loans
It’s important to note that these are averages, and actual loan amounts can vary widely from business to business. Always research and approach a lender that suits your unique business needs and circumstances. The best way to choose a lender is to compare interest rates, terms, and fees from multiple lenders. You should also consider your business’s credit score, collateral, and cash flow needs.
Percentage of Small Businesses that Received No Capital After Applying
According to the 2022 Small Business Finance Market Survey by the UK’s Small Business Administration (SBA), 18% of small businesses in the UK applied for a loan in 2021. Of those that applied, 6% were denied funding. This means that 94% of small businesses that applied for a loan in the UK in 2021 received some form of capital.
Percentage of Small Businesses that Turned to Online Lenders
According to a study by Fundera, a small business lending marketplace, 32% of small businesses turned to online lenders in 2022. This is a significant increase from just 19% in 2019. The study also found that online lenders are now the second most common source of financing for small businesses, after traditional banks.
One reason is that these lenders are often more willing to lend to small businesses than traditional banks. This is because online lenders are more likely to consider alternative factors, such as cash flow and business experience, in addition to credit scores. However, it is important to note that these lenders can also be more costly than traditional banks.
Percentage of Small Businesses that Only Received a Portion of Requested Funds
Few small firms get all the money they ask for. Often, lenders give them less than they want. As a result, many end up with only part of what they need. It’s hard to run a business without enough cash. These firms need to plan carefully and use their funds wisely in such cases. This shows how important it is to have backup plans when seeking loans for your business, as not getting the total amount can strain your operations and growth plans.
Small Business Loan Demographics
SBA 7(a) loan approval varies by race/ethnicity, gender of business owner and industry type.
- SBA 7(a) loan approval by race/ethnicity: It’s clear that race and ethnicity play a role in SBA 7(a) loan approval. Black-owned businesses get less than two in every hundred loans. Hispanic owners do better, with almost seven out of a hundred loans going their way. Yet, it’s still not fair play, as the ethnic lines seem to drive who gets the money. For example, your chance of getting PPP help changes based on where you live and what colour people are there. This sad truth shows up in many studies about credit markets, too.
- SBA 7(a) loan approval by gender of business owner: Women business owners get a lot of help from SBA 7(a) loans. In 2020, the Small Business Administration lent about $2.7 billion to women-owned businesses. This shows that these loans are a significant source of funding for them. Female business owners got around $18.4 million in loan approvals, which is relatively high! This means that women-owned businesses took up nearly 72% of all approved SBA loans that year. Yet, getting an SBA loan can be tough at times as well. Your odds are better at smaller banks, which approve almost half the applications for such loans. But larger banks only say “yes” to one out of four applicants for these kinds of business funds.
- SBA 7(a) loan approval by industry: In 2021, construction has the highest approval rate of 84%; next comes manufacturing at 82%. While other industries, such as accommodation and food services, received 66%, arts, entertainment, and recreation 58%, and finally, public administration has the lowest approval rate of 52%.
States with the Highest SBA 7(a) Loan Approval Amount
In 2021, Georgia lenders approved a significant number of SBA 7(a) loans, totalling over $1.82 billion in funding amount. This amounted to 1,758 loans being approved, with an average loan amount of $1,036,366. On the other hand, California takes the top spot as the state with the highest SBA 7(a) loan approval amount. It’s important to note that in fiscal year 2020 alone, the SBA’s 7(a) loan program made around 42,000 loans and provided a total funding of $22.55 billion.
How COVID-19 Has Affected Small Businesses’ Ability to Obtain Loans
The COVID-19 pandemic has significantly impacted small businesses’ ability to obtain loans. Many firms have faced financial difficulties and uncertainty, leading lenders to be more cautious in lending money. The economic downturn caused by the pandemic has made it harder for small business owners to demonstrate their business’s viability and creditworthiness, which are important factors considered by lenders when approving loan applications.
Additionally, with the increased risk of default due to the uncertain market conditions, lenders may be less willing to provide funding options. Moreover, data shows that there are racial disparities in accessing loans during this time. COVID-19 relief programs have not evenly distributed loans across communities, particularly those of colour. This further exacerbates the challenges faced by minority-owned businesses already struggling with limited access to capital before the pandemic.
Percentage of Small Businesses that Fail Due to Running out of Capital
Running out of capital is a major issue for small businesses, with a significant percentage of them facing financial difficulties. Studies have shown that 29% to 38% of small businesses fail due to insufficient funds. This lack of funding can lead to cash flow problems, inadequate capital for growth and operations, and, ultimately, business bankruptcy. It’s important for business owners to carefully manage their finances and seek alternative sources of financing when needed to avoid running out of capital and ensure the long-term success of their business.
Alternative Sources of Business Financing
- Business credit cards: Many small business owners utilise credit cards specifically designed for businesses to fund their operations and manage expenses.
- Invoice financing: This type allows businesses to borrow money against unpaid invoices. It can help improve cash flow by providing direct access to funds that would otherwise be tied up in outstanding invoices.
- Merchant cash advances: Some businesses opt for merchant cash advances, where a lender provides a large sum of payment in exchange for a percentage of future sales or credit card receipts.
- Crowdfunding: Online platforms allow entrepreneurs to raise funds from a great number of individuals who contribute small sums of money towards their business idea or project.
- Peer-to-peer lending: Through online platforms, individuals can lend money directly to small businesses without involving traditional financial institutions.
- Equipment financing: Businesses can obtain loans specifically for purchasing or leasing equipment needed for their operations, such as machinery or vehicles.
- Factoring: It involves selling accounts receivable to a third-party company with a discount in exchange for quick cash, which can be beneficial for businesses facing cash flow challenges.
- Angel investors: These individuals provide funding to early-stage startups in exchange for equity ownership in the company and the potential for high returns on investment.
- Grants: Certain government agencies, non-profit organisations, and private foundations offer grants that do not have to be repaid, providing valuable funding support for specific purposes or industries.
Small Business Loan Trends for 2023
In 2023, we can expect to see an increase in loans from non-bank lenders as more small businesses turn to alternative sources of financing. This shift is driven by the ease and convenience of online lending platforms, which offer faster approval processes and greater accessibility for business owners.
Additionally, there may be a continued focus on improving access to credit for minority business owners and reducing gender disparities in loan approvals. These trends reflect the evolving landscape of small business lending and highlight the importance of exploring all available options when seeking financing for your business.
Predictions for Small Business Loan Trends in the Coming Year
In the coming year, there are some predictions for small business loan trends. One prediction is that alternative sources of funding may impact financing options for small businesses. This means more business owners may explore non-traditional ways to borrow money, such as crowdfunding or peer-to-peer lending. Additionally, experts expect high-interest rates and a tight lending market to continue in 2023.
This means that business owners must find ways to offset these challenges and secure the capital they need to grow their businesses. Despite these obstacles, the small business loan market size is projected to reach a multimillion USD value by 2029 compared to 2022, indicating potential opportunities for growth in the industry.
Small business loan statistics provide valuable insights into the financing landscape for entrepreneurs. From application rates to approval rates and loan sizes, these statistics help us understand businesses‘ challenges and opportunities when seeking capital. By staying informed about these trends, business owners and marketers can make wise decisions about their financing options and plan for future growth.
1. How can I find business loan statistics?
Business loan statistics are found in the Small Business Administration (SBA), Fundera, and Forbes Advisor.
2. What do business loan statistics show?
Business loan statistics provide information about the number of loans issued, average loan amounts, interest rates, and repayment terms for businesses in a particular region or industry.
3. Are there any trends in business loan statistics?
Yes, trends in business loan statistics can reveal changes in lending practices, such as an increase or decrease in loan approvals or shifts in industries receiving the most funding.
4. Why are business loan statistics vital for entrepreneurs?
Business loan statistics are essential for entrepreneurs as they provide valuable insights into market conditions and lending patterns that can help them make informed decisions when seeking financing for their businesses.
5. Can business loan statistics help me assess my chances of getting a loan?
By studying business loan statistics, you can understand lenders’ criteria and requirements to assess your chances of obtaining a desirable outcome when applying for a business loan.