Small Business Loan Statistics And Trends 2024
Raja Maan / Commercial Finance
PRIVATE DEBT & EQUITY | SBA | USDA : Hotels, Gas Stations, Car Wash, Truck Stops, Multifamily, Mixed Use, Retail, Office, Self-Storage
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Business loans are vital for entrepreneurs, startups and established businesses looking to grow or overcome short-term financial challenges. This flexible financing is typically provided through banks, credit unions and online lenders, with varying interest rates, repayment terms and eligibility requirements.
Loans for small businesses can be used for numerous purposes, including financing new equipment or inventory, expanding operations, hiring new staff and consolidating debt. Whether you’re a small business owner looking to expand your reach, or a large corporation seeking financial stability, business loans may be a viable option to help you achieve your goals.
Small Business Financial Statistics
Small businesses are the backbone of many industries and communities, but recent data shows they face significant financial challenges. According to the Federal Reserve Banks’ Small Business Credit Survey, a staggering 59% of small businesses reported being in fair or poor financial condition.[2]
This number has risen considerably over the past few years, with 85% of small businesses experiencing financial difficulties in 2021 alone.[2] This increase of almost 20 percentage points since 2019 is a trend that highlights the ongoing struggles small businesses face.
Moreover, only 42% of small businesses have their financing needs met, illustrating a significant gap in financial services for these businesses.[2] The majority of them rely on either a large or small bank as their financial services provider. This heavy reliance on banks could be due to a lack of knowledge of other financing options, such as alternative lenders or angel investors.
Small Business Loan Statistics
Per the Federal Reserve’s latest report, the average small business loan amount is approximately $663,000.[3] Despite the availability of funds, the percentage of firms seeking traditional financing has declined in recent years.
In 2019, approximately 43% of small businesses applied for a loan—a number that dropped to 37% in 2020.[3] Only 34% of small businesses applied for a loan in 2021. The reason for the decline in traditional financing is unknown. However, it indicates that small businesses are picking alternative financing options, such as crowdfunding, peer-to-peer lending and fintech platforms.
While traditional financing has become a less popular choice among businesses seeking funds, the process has also become more challenging. Only 31% received all the funds they sought in 2021, compared to 51% in 2019.[3] Overall, the percentage of applicants receiving all the funding they applied for has decreased.
The good news is that outstanding debt to small businesses has decreased from 80% in 2020 to 74% in 2021, with most firms having $100,000 or less in debt.[3] So, despite challenges, businesses are finding ways to navigate financing and manage their debt effectively.
Reasons To Apply for a Business Loan
A Forbes Advisor survey sought to identify how business owners used funds from their latest business loans. Respondents had the option to select up to three choices.
According to the survey, a significant proportion of business owners used the funds for business expansion, with 42.4% selecting this option as one of their top three choices.[4] Equipment purchases came in second place, cited by 29.4% of respondents, while marketing and advertising accounted for 28.6% of the loan usage.[4]
Business franchising was the next most popular reason to seek financing, with 27.6% of respondents citing it as a factor, closely followed by commercial real estate purchases/remodeling at 26.8% and business acquisitions at 25.4%.[4] Other common reasons included:
These findings shed light on the priorities of business owners as they look for ways to grow and develop their companies. They can also provide valuable insights for lenders and investors seeking to understand their clientele better.
Small Business Financial Statistics
Small businesses are the backbone of many industries and communities, but recent data shows they face significant financial challenges. According to the Federal Reserve Banks’ Small Business Credit Survey, a staggering 59% of small businesses reported being in fair or poor financial condition.[2]
This number has risen considerably over the past few years, with 85% of small businesses experiencing financial difficulties in 2021 alone.[2] This increase of almost 20 percentage points since 2019 is a trend that highlights the ongoing struggles small businesses face.
Moreover, only 42% of small businesses have their financing needs met, illustrating a significant gap in financial services for these businesses.[2] The majority of them rely on either a large or small bank as their financial services provider. This heavy reliance on banks could be due to a lack of knowledge of other financing options, such as alternative lenders or angel investors.
Small Business Loan Statistics
Per the Federal Reserve’s latest report, the average small business loan amount is approximately $663,000.[3] Despite the availability of funds, the percentage of firms seeking traditional financing has declined in recent years.
In 2019, approximately 43% of small businesses applied for a loan—a number that dropped to 37% in 2020.[3] Only 34% of small businesses applied for a loan in 2021. The reason for the decline in traditional financing is unknown. However, it indicates that small businesses are picking alternative financing options, such as crowdfunding, peer-to-peer lending and fintech platforms.
While traditional financing has become a less popular choice among businesses seeking funds, the process has also become more challenging. Only 31% received all the funds they sought in 2021, compared to 51% in 2019.[3] Overall, the percentage of applicants receiving all the funding they applied for has decreased.
The good news is that outstanding debt to small businesses has decreased from 80% in 2020 to 74% in 2021, with most firms having $100,000 or less in debt.[3] So, despite challenges, businesses are finding ways to navigate financing and manage their debt effectively.
Reasons To Apply for a Business Loan
A Forbes Advisor survey sought to identify how business owners used funds from their latest business loans. Respondents had the option to select up to three choices.
According to the survey, a significant proportion of business owners used the funds for business expansion, with 42.4% selecting this option as one of their top three choices.[4] Equipment purchases came in second place, cited by 29.4% of respondents, while marketing and advertising accounted for 28.6% of the loan usage.[4]
Business franchising was the next most popular reason to seek financing, with 27.6% of respondents citing it as a factor, closely followed by commercial real estate purchases/remodeling at 26.8% and business acquisitions at 25.4%.[4] Other common reasons included:
These findings shed light on the priorities of business owners as they look for ways to grow and develop their companies. They can also provide valuable insights for lenders and investors seeking to understand their clientele better.
How Long Does It Take To Spend Business Loan Funds?
Entrepreneurs know that financing is crucial to success in business. However, it’s not enough to obtain a loan—it’s also important to use the funds in a timely manner. Based on a Forbes Advisor survey, most business owners took six months or less to spend the funds from their most recent loan.[4]
Specifically, the study found that 21% of respondents took five to six months to spend the funds, while 19% took three to four months and 16% took one to two months.[4] Interestingly, only 5% of respondents said they spent their funds in less than one month.[4]
These numbers start dropping off at the seven- to eight-month mark, with only 13% of respondents exhausting their funds over this period.[4] Only 4% took over one year to spend their funds.[4]
Small Business Loan Application Statistics
According to Federal Reserve data, the application rates for traditional financing amongst small businesses have continuously declined in recent years. The figures show that the percentage of small businesses seeking traditional financing fell from 43% in 2019 to 37% in 2020, with a further drop to 34% in 2021.[2] Interestingly, the few small businesses that did apply for financing were less likely to receive the funding they sought.
The percentage of applicants receiving all the funding they sought fell from 51% in 2019 to 36% in 2020, with another dip to 31% in 2021.[2] Small businesses owned by people of color, firms with fewer employees and leisure and hospitality firms were the least likely to receive the full amount of financing sought.
Recent data reveals that large and small banks are the primary sources of loans for small businesses, with 43% and 36% of companies turning to these institutions for funding, respectively.[2] However, in the last year, there has been a slight increase in the number of small businesses opting to apply for financing through online lenders.
In 2021, 23% of all small business loan applicants chose an online lender, compared to 20% in 2020.[2] Alternatively, 17% of small businesses applied for loans with finance companies, 8% with credit unions and just 3% with community development financial institutions (CDFIs).[2]
Small Business Loan Demographics
A U.S Small Business Administration (SBA) 7(a) loan is the flagship SBA loan program and includes several financing options. The popular program offers loans up to $5 million that business owners can use to cover everything from working capital and inventory costs to real estate purchases and construction of a new building.
We looked at demographic trends in 7(a) loan disbursement based on race, gender, industry and state. Here’s how approval rates and approved loan amounts stack up across these categories.
SBA 7(a) Loan Approval by Race
According to recent data, white business owners have received the largest share of 7(a) loan dollars, with a staggering 42.4% of the approved loan amount.[5] This amounts to just under $10.9 million in total loan funds. Those who didn’t specify their race received 25.2% of the loan amount, just under $6.5 million.[5] Following them are Asian business owners, who received 20.6% of the loan dollars, with slightly more than $5.3 million in loan funds.[5]
Hispanic, Black or African American and American Indian or Alaska Native business owners received the smallest share of total 7(a) loan dollars at 7.2%, 3.9% and 0.7%, respectively.[5] This data reveals the stark lack of equity and inclusivity in the lending industry.
SBA Loan Approval by Gender
When it comes to receiving 7(a) loan dollars, male-owned businesses have a clear advantage. These businesses receive an overwhelming 71.6% of loan approval amounts, totaling almost $18.4 million.[5]
Meanwhile, companies that are more than 50% female-owned receive just 14.8% of these funds, equating to just over $3.8 million.[5] Businesses that are less than 50% female-owned receive a similar amount—13.6% of loan funds totaling almost $3.5 million.[5]
These numbers demonstrate an apparent discrepancy in loan distribution and draw attention to gender inequalities within the business world.
SBA Loan Approval by Industry
In 2022, the largest share of 7(a) loan dollars went to businesses in the accommodation and food services industry (19.20%), followed by retail trade (14%), and healthcare and social assistance (10.30%).[5] These industries demonstrated the highest demand for financial assistance in the small business sector.
The public administration, utilities and management of companies and enterprises sectors demonstrated the lowest share of loan dollars, representing 0%, 0.10% and 0.20%, respectively.[5] Interestingly, while the management of companies and enterprises sector had a relatively low percentage of loans and loan dollars, it claimed the highest average loan size, hovering around $1.4 million.[5]
These statistics emphasize the importance of tailor-made financial assistance in each industry to meet the specific needs of small businesses. With the help of targeted loan programs like 7(a), small businesses can gain access to the necessary funds to thrive and navigate the ever-changing economy.
SBA Loan Approval by State
The SBA has recorded significant trends in loan approval across states in the U.S. over the past five years. In data from 2018 to 2022, Georgia ranks first on the list with the highest average 7(a) loan approval amount at $840,145.[5] Following closely in the top five are Texas, California, Louisiana and Alaska—all of which have seen a noticeable increase in loan approvals.[5]
Hawaii comes in last place with the lowest average approval amount of $213,505. Maine, Massachusetts, Ohio and New Hampshire rounded out the bottom five.[5] These results demonstrate how states vary when it comes to borrowing opportunities and financing challenges for small businesses, making it essential for entrepreneurs to be familiar with these trends.
Among the top 10 states with the highest five-year average 7(a) loan approval amount, four of the 10 most populous states claimed a spot on the list. This tells us that larger population states may have an advantage in securing larger loan amounts.
An analysis of five years of 7(a) loan data reveals a significant drop in average loan approval amounts in 2022. In the previous year, 2021, the nationwide average 7(a) loan amount was at a high of $704,581.[5] However, in 2022, this average plummeted to $538,903, marking a drop of over $165,000 compared to the year prior.[5] These fluctuations remind us of the importance of staying current on data trends when making financial decisions.
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