There are roughly 5.1 million companies that form the small to medium-sized business (SMB) category in the U.S. today—and the segment continues to grow, at 4% annually. Defined by their size—under 1,000 employees—many of these businesses seek external funding, which in turn carves out a lucrative opportunity for lending institutions like credit unions and community and regional banks.
To uncover leading trends and statistics, the Federal Reserve’s 2019 Small Business Credit Survey gathered 6,600+ responses from U.S.-based SMBs with between 1 and 499 employees.
Based on the results, here are the top 7 small business lending statistics of 2019—and some key insights to inform your 2020 small business lending decisions.
- 57% of small businesses reported revenue growth in 2018. Over one-third added employees to their payrolls.
With a majority seeing topline growth, the U.S. small business landscape remains strong. Simply put, lending to these businesses isn’t nearly as risky as it once was—and offers an attractive opportunity to diversify your overall lending portfolio, with the right borrowers in place.
- For at least three years, there’s been a steady rise in the demand for capital from small businesses.
Since 2016, the demand for capital by small businesses has steadily risen: in 2017, 40% of surveyed businesses applied for some form of capital. In 2018, the number grew to 43%—and there’s no end in sight. Banks should not wait to tap into this lucrative trend.
- 64% of small businesses needed capital in the last year. (Over two-thirds wound up using personal funds.)
With limited and/or inconsistent cash flow, small businesses are almost bound to face financial hurdles. But when seeking capital, they typically find many banks turning their backs—for reasons that relate less to credit-worthiness, and more to slimmer bank margins due to time-consuming due diligence (a problem that our company, LendingFront, eliminates).
As a result, many small businesses resort to employing owner funds. This is a systemic challenge, with a finding that points to an appealing white space opportunity for banks.
- 53% of the small businesses that sought capital received less funding than they wanted.
Most small businesses that wanted to borrow money didn’t get to borrow enough. Whatever the reason, too many small businesses are settling for smaller loans. By decreasing the cost of small business lending, banks can more consistently fill funding requests for credit-worthy small businesses.
- Funding shortfalls were particularly pronounced among specific small businesses, with particular credit needs.
Small businesses reporting financing shortfalls typically fell into the following categories:
- Were unprofitable
- Were newer
- Were located in urban areas
- Sought $100–$250K in funding
Of course, not all small businesses deserve capital. But some shortfall trends—like newer businesses or those in urban areas—may point less to an issue of qualification…and more to systemic barriers. Adopting digital lending software like LendingFront can help bridge this gap, increasing loan accessibility for small businesses in areas with less access and fewer resources.
- 23% of the surveyed businesses indicated funding shortfalls; another 29% likely have unmet funding needs.
Here’s where we’re going with all this: paired with a lack of adequate funding, optimistic revenue growth puts many viable small businesses at unnecessary risk. Capitalizing on these funding trends—and increasing small business sustainability—may well benefit both banks, businesses, and society-at-large in the long run.
- 32% of applicants turned to online lenders in 2018, up from 24% in 2017, and 19% in 2016.
Online lenders—including banks that use digital lending software like LendingFront—are on the rise. Not only do these digital times make convenience king, this is especially true for small business owners who wear multiple hats—and are naturally short on time. Online lending options offer small business owners greater accessibility, efficiency, and savings throughout the lending process, especially as digital lending solutions become increasingly sophisticated.
