Last Updated on March 9, 2022
Suppose you’re considering applying for a small business loan. You might wonder how good your odds are of getting approved for some form of financing. We understand your concerns, and we’re happy to say that the odds of receiving some financing are in your favor. In this article, we’ll provide information on some statistics and explain what they mean for small businesses.
12 Quick Statistics about Small Business Loans
- 29% of small companies fail for lack of funding.
- 43% percent of small companies requested loans last year.
- Institutional lenders have the highest approval rate of any financial institution at 66%.
- The merchant cash advance has the highest approval rate of all small business loan types at 85%.
- Only 48% of all small businesses receive enough financing.
- 9% of small companies did not receive funding after applying for financing.
- 14% of entrepreneurs receive only a portion of their requested funds after applying for loans.
- On average, a bank loan for a small business amounts to $633,000.
- SBA loans typically amount to $107,000.
- 32% of small-business owners contacted lenders online last year.
- 70% of small companies owe money.
- 56% of small companies want money to expand, take advantage of new opportunities, or acquire resources.
29% of small companies fail due to a lack of funding.
Though some small businesses apply for loans to fund exciting projects, others use them to fill financial gaps.
Lack of money ranks second on the list of reasons small businesses won’t succeed. Twenty-nine percent of small companies fail because of this. Forty-two percent of them fail because their product or service does not have a market, which results in a lack of funds.
Other reasons businesses fail include:
- The wrong team
- Out competition
- Costs and pricing
- Poor product offerings
Last year, 43% of small companies applied for loans.
This statistic isn’t surprising based on the information from the previous statistic. Based on the Federal Reserve’s survey of small business lending, 43% of small companies applied for small business loans last year.
Institutional lenders have the highest approval rate of any financial institution at 66%.
As per Biz2Credit’s Small Business Lending Index, institutional lenders approve the largest number of small business loans. Their approval rate hovers around 66%.
However, several other institutions aren’t far behind:
- The alternative lending industry has an approval rate of 56.8%.
- Small bank business loans have a 50.1% approval rate.
- Credit unions approve 39.9% of small business loans
- Big banks approve 27.7% of small business loans.
The merchant cash advance is the most popular of the different kinds of small business loans, with an 85% approval rating.
Their high approval rate isn’t surprising, but it might surprise you how other types of loans for small businesses compare:
- Loans for autos and equipment are approved 80% of the time.
- Business credit lines are approved 70% of the time.
- Loans for business mortgages are approved 69% of the time.
- Conventional business loans are approved 67% of the time.
- Personal loans are approved 55% of the time.
- The SBA approves 52% of business loans.
Overall, only 48% of all small businesses receive complete financing.
This number consists of the 20% that secured all their financing via a small business loan and the 28% that did not apply since they had enough funding. The other 52% consist of:
- Those who apply but do not receive funding.
- Those who apply and receive approval for part of the requested financing.
- Those that don’t apply because of debt aversion.
- Those that don’t apply because they’re disheartened.
9% of small companies did not receive any funding after applying for financing.
Only 9% of small companies applied for a small business loan and received no funding at all. Small businesses are more likely to receive all the funding they request – 20% – than to receive none at all.
14% of entrepreneurs receive only a tiny percentage of the funds they requested after applying for financing.
There’s always the possibility that a small business might apply for financing and only receive part of the amount they requested. Fourteen percent of the companies applied and got some of the financing they needed.
At 34% vs. 9%, your chances of receiving a small business loan are better.
On average, a bank loan for small businesses amounts to $633,000
Small businesses are less profitable, so banks hesitate to lend to them. Small business loans make the bank less money, even though big business loans cost them the same to administer. Therefore, a bank loan for a small business typically amounts to $633,000.
SBA loans average $107,000
In contrast, SBA loans, which the government backs, present a lower risk for banks participating in the SBA loan program. Because of that, they seem more inclined to lend small businesses smaller amounts, as demonstrated by their $107,000 average loan amount.
32% of small businesses contacted online lending agencies in the past year.
Thirty-two percent of small businesses applied for funding online in the past year. Over the past three years, this number has grown significantly.
As a result, online lenders are starting to overtake more traditional lenders. Forty-nine percent of small business owners seek loans from large banks, and 44% seek loans from small banks.
70% of small companies owe money.
According to statistics, 70% of small businesses owe a debt. Despite that, most small businesses with outstanding debt were under $100,000. Seventeen percent of them owe between $1 and $25,000, and 21% owe between $25,000 and $100,000.
56% of small companies want money to expand, take advantage of new opportunities, or acquire resources.
Despite the perception that small business loans are the last resort for failing companies, the Federal Reserve found that 56% apply to expand their businesses, take advantage of new opportunities, or acquire assets.
The bottom line for small business owners is that you have many options for receiving a small business loan and a good chance of receiving one if you prepare well. Consider all your options to determine which option is best for you, and have some idea of what you’re going to use the loan for when you apply for it. Following these steps will improve your odds of receiving at least some funding.
The Bottom Line
It’s true that only 48% of companies have received enough funding, but it’s also true that only 9% haven’t received any funding at all. So, the odds of getting at least part of what you need are in your favor
If you’re considering requesting funding for your business, analyze this data and your business needs in detail so that you can choose the best option.
Jim is the General Manager of altLINE by The Southern Bank. altLINE partners with lenders nationwide to provide invoice factoring and accounts receivable financing to their small and medium-sized business customers. altLINE is a direct bank lender and a division of The Southern Bank Company, a community bank originally founded in 1936.