Latest Trends in Small Business Lending Statistics

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Trends in Small Business Lending Statistics

Many new and established small businesses face cash flow challenges, leading to problems down the line.

Small and medium-sized businesses in the United States are being profoundly affected by the global pandemic even today. We are seeing a shift in small business lending activity trends and the business loan marketplace.

The U.S. Government and lenders in 2020 helped businesses cope with the effects of the covid epidemic. The SBA offered Covid-19 relief loans with PPP and EIDL programs.

As the U.S. economy began to improve in 2021, a need arose for working capital and growth capital money for acquisitions.

Businesses’ borrowing demands are continued based on business growth and the need for business expansion loans.

Companies typically seek finance to meet their working capital needs. Funding requests for business expansion loans remain lower than pre-pandemic levels.

 The Trends

Inflation topped a list of ten issues, including weak sales, high labor costs, and taxes, as rated by NFIB poll respondents last month.

28% of owners ranked inflation as the most significant problem.

Small company owners are increasing prices.

Payroll costs are at a two-decade high.

The price hike has hit all four sectors of the economy—wholesale, manufacturing, retail, and construction.

45% of all small firms have used loans to offset the effects of inflation in the last year.

Almost a quarter of business owners cited inflation as their top concern, although they were more concerned with the quality of available labor.

Even compared to the previous year, that was just a 3% decrease. Businesses already have a lot on their plates without worrying about whether their products are of the highest quality possible during production.

The current concern over workforce quality appears to be rooted in the fact that 61% of business owners have reported receiving little or no qualified applications for open positions. Three-in-ten business owners have had trouble finding appropriate candidates to fill open positions, and one in ten say they have had none.

Business owners ranked finance and interest rates as the least significant, at only 1%. The same 1 percent of people considered that an important issue last year.

Small Business Statistics

According to a Reuters survey, labor is still intense despite rising interest rates, tighter financial conditions, and demand. This combination is causing a decline in small-business confidence in the United States in the second quarter of 2022.

Every month since January, optimism about the state of the economy has steadily declined. The biggest problem is still inflation, and there’s concern about the response from the Federal Reserve Bank, higher interest rates (read higher borrowing costs), and slow to no growth leading to a recession.

What is the Outlook For the Alternative Lending Market and the Business Loan Market in General?

When people and company owners talk about “alternative financing,” they’re referring to all the different kinds of loans they can get from sources other than traditional banks. Simply put, it’s the practice of borrowing money from organizations that lack a full banking license.

Challenges Business Owner Face

Since conventional banks have shown little interest in financing blue-collar workers, freelancers, or gig workers with little or no established credit history, private companies in the alternative lending industry are exploding, offering these groups access to capital.

One common reason business owners seek out “alternative lending,” or financing from sources other than banks, is it can be difficult for a small independent business to secure banking industry loans. Many look for business lending solutions where they can choose from various loan programs provided by nonbank financial firms.

Non-banks can provide a range of banking services, including business loans and other forms of financing alternatives. These lenders make it simpler for the business loan borrower to secure financing, which is especially helpful for small business owners who may not have stellar credit or other traditional bank lending institution prerequisites.

Trends in the Alternative Lending and Non-Banking Sector

Traditional financial institutions are under increasing pressure to modernize their lending standards and practices as the number of technologically savvy alternative lenders and nonbanks SME lending grows.

Over 40% of customers surveyed by Oracle’s Digital Demand in Retail Banking study of 5,200 consumers from 13 countries believe nonbanks can better assist them with personal money management and investment needs,

30% of respondents who haven’t tried a nonbank platform said they are open to trying one.

Small Business Loan Statistics According to the Federal Reserve Bank Small Business Survey 2022

• While things have improved since 2020, revenue and employment still lag their pre-pandemic levels.
• The pandemic continues to significantly impact firms, with 77% reporting adverse effects from the pandemic at the time of the survey.
• Half of the leisure and hospitality firms reported a sizeable negative impact from the pandemic, while only 26% of manufacturing firms said the same.
• Forty-eight percent of firms saw a decrease in revenue over the prior 12 months, while 38% saw an increase. A vast majority of firms—76%—decreased employment or paused hiring.
• Revenues remain below pre-pandemic levels for 63% of firms, and employment is lower for 43%.
• Expectations for future revenue and employment growth have improved since 2020 but remain below pre-pandemic levels; 59% expect revenues to rise, and 41% anticipate employment growth in the next 12 months.

An Overview of Small Business Lending Statistics 2022

Index of Optimism – General Business Stats

According to NFIB, the Optimism Index declined 0.1 points in May to 93.1. It has now been below the 48-year average of 98 for five straight months. Through May of this year, the Index has fallen every month.

Job Markets

The tighter labor market is just one of the numerous obstacles business owners must overcome. The unemployment rate had remained unchanged at 3.6%, the same as before the pandemic began.

51% of business owners (after adjusting for seasonality) have positions they cannot fill at present, a rise of 4% from April.

Forty-two percent are looking to hire qualified individuals, an increase of two percentage points from a year ago.

Twenty-five percent need workers with lower levels of education and training, an increase of three percentage points.

Expenditure On Investments

53% of respondents said they had made capital expenditures in the preceding six months, down from 54% in April.

Capital goods orders have surprisingly remained strong across the economy, albeit they have slowed somewhat for the smaller enterprises that dominate the service industries.

36% reported spending on new equipment (down 4 points), 21 percent acquired vehicles (down 3 points), and 15 percent upgraded or expanded facilities (up 1 point).

6% expanded by purchasing new buildings or land (a drop of 2% from the previous year),

14% upgraded their office furnishings (1 point higher).

25% plan capital outlays in the next few months, down 2 points from April.

Inventory and Sales

2% loss since April; 3% of all owners reported more nominal sales in the previous three months.

3% drop in business owners anticipating a positive change in actual sales volume.

-1% is the percentage of business owners reporting a rise in stock, which decreased by five percentage points.

17% (non-seasonally adjusted) saw an increase in stock, while 15% saw a decrease. Nearly 40% of business owners say supply chain interruptions have significantly affected their operations (up 3 points).

Compensation And Earnings

46% seasonally adjusted reported increased compensation, down 3 points from April.

25% net increase in compensation over the next three months, down 2% from April but still very substantial.

4% rise from April to May, with 12% citing labor costs as their most significant issue, while 23% named labor quality as their biggest concern (unchanged).

The quality of the workforce continues to lag inflation.

Credit

2% of owners said their borrowing needs were not satisfied (unchanged).

22% reported all credit needs were met (down 6 points)

65% said they were not interested in a loan (up to 4 points).

4% of borrowers said they had difficulty securing a loan (recently) than in the past (unchanged).

1% said money issues were their most significant challenge (unchanged).

Inflation

2% point gain from April to May, bringing the net percent of owners upping average selling prices to 72 percent (the same as March 2022 and a new high).

3% percent reported lower average selling prices (-1 percentage point), and seventy-one percent said higher average prices (+1 percentage point) without any adjustments.

80% percent more wholesale prices increased, while four percent fewer were decreased;

79% more manufacturing prices increased, while one percent fewer were decreased;

78% more retail prices increased, and two percent fewer were decreased;

80% more construction prices increased, while two percent fewer were decreased (77 percent higher, 2 percent lower).

General Business Cashflow Statistics

According to a LendingTree Survey, people in the United States are adjusting their work schedules because of coronavirus.

It is particularly challenging this year for small business owners to comply with new and ever-evolving regulations that are forcing the closure of some companies, either temporarily or permanently.

Small Business Loans Statistics

• 85% is the approval rate for merchant cash advances.
• 70% of small firms have outstanding debt.
• 66% of Institutional lenders have the highest acceptance rate compared to other loan providers.
• 57% of loan applicants were looking for less than a hundred thousand dollars.
• 56% of all funding requests come from companies looking to grow, diversify, or acquire new assets.
• 48% of small firms can meet their financial demands.
• 43% of small enterprises sought funding in the previous year.
• 36% of small business credit scores are the reason for the denial of the funding request.
• 32% increase in the number of small company loans obtained through internet lenders compared to the previous year.
• 29% of small firms’ lack of available funds contributes to the company’s demise.
• 25% of small firms that applied for loans received less than the total amount they wanted.
• 9% of small firms that applied for loans ended up getting turned down for funding.

Editors Note Post PPP and EILD Loans (mid-2021, we experienced pushback on any rates above the 3.75% government EIDL loans and the forgivable PPP loans. Essentially free money and anything that wasn’t monthly payments or lines of credit. 

Average loan size by business lender type  

$663,000 – Average business loan offered – all commercial and industrial loan amounts (C&I)

$593,000 – Large national banks

$146,000 – Small domestic banks

$107,000 – SBA Loans

$37,258 – Online Lenders

721 – Average credit score (Experian)

698 – National average: (VantageScore® data)

When securing funding, a company’s creditworthiness is evaluated based on either the owner’s personal credit history or the company’s business credit score. If a company uses both, they will prioritize the lower score.

• Low Credit Risk – A firm with a credit score of 80–100 or an individual with a score of 720 or higher.
• Medium Credit Risk – A company’s credit score must be between 50 and 79, or a person’s score must be between 620 and 719.
• High credit risk – A corporate credit score of 1–49 or a personal credit score below 620.

FAQs

Is small business lending profitable?

Most small business owners don’t understand how to calculate profitability and tend to focus on short-term results rather than long-term goals.

Learn how to calculate profitability based on your monthly revenue and expenses.

What is the success of SBA loans?

SBA loans have a 5-year default rate of 1.1%, which is lower than any other financing available to small businesses. Remember, the SBA loan is a bank loan backed or guaranteed by the Small Business Administration.

An interesting SBA lending non-numeric statistic is the loan application process for a Small Business Administration loan is the most arduous of any credit application.

To put it in perspective, SBA loans and other small business loans have an acceptance rate of only about 25% at major banks (combined!).

How does Sunwise Capital compare with alternative financing sources?

Sunwise Capital works directly with approved SBA lenders under the SBA 504 (uses include real estate or machinery for up to 25 years) and 7(A) Programs. Upon receiving the necessary paperwork, we will promptly issue a pre-approval.

If submissions aren’t complete, there is a delay in the pre-approvals. We’ll compile a detailed list of the needed items and get back to you. The funding process can take up to seven business days once all paperwork is received. Within 4 to 6 weeks is the expected timeframe for final funding.

Why should I use Sunwise Capital instead of another financial institution or loan company?

Because Sunwise Capital has been in business since 2010, we’ve had plenty of time to learn about the industry’s nuances. Any questions? Just ask because our team of professionals is standing by to assist you.

Our services include for business applicants:

1. Business loan applicants – You can apply from the U.S. using your computer, tablet, or smartphone.
2. Quick turnaround on approvals – We’ll get back to you in minutes and funding within hours.
3. Competitive rates – Most banks won’t consider loaning money to small businesses. We offer competitive rates, plus no prepayment penalties.

What’s the average interest rate for a loan to a small business?

It depends on several factors, including the type of loan, the amount borrowed, the length of the repayment period, and the borrower’s credit history. A good rule of thumb is that the average rate for a small business loan ranges from mid-single digits to 37%.

How small businesses can qualify for a business loan? 

Qualification for a business loan will vary from lender to lender. In general, however, there are three main factors used to determine whether a business qualifies for a loan:

• Net Worth – A minimum net worth of $250,000 for many types of loans. However, this requirement varies depending on the type of loan considered. For example, a commercial real estate loan may require a higher net worth than a personal line of credit.

• Gross Revenue – A minimum annual revenue of $50,000 for most types of loans. Again, this requirement varies based on the type of loan. For example, a construction loan may only need a $50,000 annual revenue, while a commercial real estate loan might require a $100,000 annual revenue.

• Cash Flow – A cash flow statement must show how much cash from the previous year. If the company’s total sales were less than $500,000, it should explain why its sales were below this amount.

Is getting a small business loan always worth the risk?

Securing a business loan has a few inherent risks. The first is, as mentioned above that the business will not repay the loan, which is called non-repayment.

The second risk is that the business owner will default on the loan, known as default.

Mitigating the risk is when the bank or other lending institution takes possession of the collateral in the event of a default.

Where is the best location to get a small business loan in the United States?

There are thousands of lenders across the United States. Which one is ideal for you will vary according to your circumstances and where you call home. Some good places to start looking include:

• Small Business Administration (SBA) Loans – These loans are available through banks, credit unions, and local SBA offices. They have reasonable interest rates and accommodating payback schedules. You can also use them to purchase equipment, make improvements to buildings, or buy inventory.

There are two SBA loans: 7(a) and 504.7(a). The difference between the two is that:

1.  7(a) requires a down payment of 10% of the loan value, while the
2. 504.7(a) does not have any down payment requirements.

The maximum loan amounts allowed under both programs are $5 million.

Another option for the small business owner to secure a business loan is through a private money lender. Private money lenders are individuals who lend money directly to borrowers, and they usually don’t ask for collateral but charge high interest rates.

Check out our private money-lenders post to learn more about the services they offer and who qualify to use them.

Another option to secure a business loan is through a commercial bank. Commercial banks are large financial institutions with branches all over the country.

These banks provide many financial products and services, such as checking and savings accounts, mortgages, auto, and student loans.

Banks often offer various financing options such as lines of credit, term loan, revolving lines of credit, and commercial real estate loans.

In addition to offering traditional banking products, some banks provide specialized financings like equipment leasing, asset-based lending, and merchant cash advances.

The best place for minority owned businesses to secure financing is through a Minority Enterprise Development Agency (MEDA). MEDAs help minority-owned businesses access capital at a lower cost than would otherwise be possible.

They do this by providing matching funds so that minority owned companies can receive up to 90% of the funding needed from government sources. For example, if a company wants to raise $100,000, it could apply for a loan of up to $90,000. If the agency provides an additional $10,000, the total amount raised is $110,000.

Online or alternative lenders like Sunwise Capital offer a wide range of business loans from invoice factoring to lines of credit, term loans, unsecured loans, SBA loans, and more.

Get in touch with Sunwise Capital immediately if you’re curious about your options for business financing.