If you're interested in taking out business loans, it's important to know several statistics that can affect your potential borrowing power. For example, according to Fundera, a leading online publication on loans and banking, 29% of small businesses like yours will fail when they run out of capital. A strong loan can prevent that problem, but obtaining this loan type can seriously impact your bottom line for a long time.
Thankfully, we're here with the statistics you need to choose a smart loan and avoid serious financial loss. Our team did careful research and checked out surveys by Federal Reserve banks, SBA publications, and various other sites to get the information you need. Reading through this data makes it easier for you to find the high-quality loan you need. Let's get started!
1. Under Half of Small Businesses Meet Their Financing Needs
Here's a statistic that might shock you: about 48% of small businesses meet their financing needs, with 20% getting loans and 28% lacking enough capital without a loan, Fundera reports. That means a shocking 52% of all businesses get no financing or only get a portion of what they need. That's a huge problem that leads to many of these businesses failing outright. It's an issue that can impact various markets in many ways and cause problems with proper financing methods, trigger issues with funding, and more. Pursuing business loans can keep borrowers from making this mistake. One major purpose for obtaining a business loan is to fund the expansion and growth of a company. Whether it is opening a new location, buying additional equipment, or hiring more staff, a business loan can provide the necessary capital to take your business to the next level. Additionally, business loans can also be used to invest in marketing strategies or expand into new markets, helping businesses to increase their customer base and revenue.
2. Most Businesses Have Serious Debt
If your business has some debt, don't worry: you aren't alone. Zippia, a leader in industry statistics, reports that 70% of all small United States businesses have outstanding debt. 38% own less than $100,000, with 17% owing under $25,000. The rest own between $25,000 and $100,000. What do those statistics reflect? Staggeringly, 62% of all small businesses owe over $100,000, which is a serious problem. While loans may help pay off much of this debt, many companies feel like new business loans would “trap” them even further. However, consolidating that debt into one payment would pay it off more quickly.
3. Average Loan Sizes Vary
According to the Small Business Administration (SBA), their average loan size is about $417,316. That means that they're lending, on average, nearly $500,000 to small businesses throughout the nation. They often cap off their loans between $350,000 and $500,000 to avoid seriously impacting companies. Note that the maximum amount for this type of loan is $5 million, though most small businesses typically don't have enough collateral for it. That's because loans over $25,000 usually require some kind of collateral to earn. Smaller companies simply lack that kind of capital. Keep this average in mind as you consider a business loan.
4. Many Businesses Failed to Prepare for COVID
When COVID-19 impacted the nation, many big companies took out loans to expand and stay solvent. However, statistics from Zippia reflect that only 38% of all small business owners took out a loan in 2020 to expand. That said, those who did take out loans had to do so simply to stay open and running, not for business expansion or investment opportunities.
That highlights an upsetting trend that still impacts companies throughout the nation. Taking out loans simply to make payroll or pay expenses is a losing game for many businesses. It's critical to find an exit strategy for paying off loans and increasing sales to avoid falling into a debt trap. Having a clear understanding of your responsibility when it comes to repayment terms can make a significant difference in your ability to pay off your loan.
5. Interest Rates Can Vary Heavily
According to the SBA, the average rates for business loans vary between 2.54% to 7.01%. Their loans are typically between 5.50% and 8%. Those are somewhat reasonable loan rates that are important elements in crafting a plan to pay off your debt. When you do get into a repayment cycle for your loans, you must make sure that you pay more than just the minimum payment. Getting into the trap of just paying the interest payments will keep you latched on your loan forever. Always try to pay more to get your loan eventually paid off.
6. Millions of Loans Get Distributed Every Year
According to the SBA, they distributed over 14 million loans in 2020 alone for a whopping $764 billion in value. That's a bit higher than normal, and $736 billion of that was COVID-19 relief loans. However, that loan value isn't too unusual, particularly in hard times. In fact, lenders are often more likely to thrive during difficult periods because companies like yours may need loans. They're also more likely to reduce interest rates and provide fair repayment cycles. That helps to ensure that you don't struggle to repay while business is low. Business loans serve as a vital source of funding for entrepreneurs looking to expand their operations, invest in new equipment, or launch innovative products and services in order to stay competitive in today's dynamic marketplace. Moreover, businesses may also seek a loan to expand their operations to new markets or locations, allowing them to reach a wider customer base and increase their revenue. Additionally, a business loan can be used to hire and train new employees, providing the necessary manpower to scale the business and meet increasing customer demands. This can lead to higher productivity and overall growth, as businesses are able to expand their operations and capitalize on new market opportunities.
7. Few Businesses Survive 10 Years
The financial experts at Fundera give us a look into small business success with some recent statistics on sustainability. Here's the good news: nearly 80% of new small businesses survive for one year. However, your success rate drops to just over 69% after two years and 50.2% after five years. By the time you hit 10 years, your success rate drops to a shockingly low 33%. Why is that the case?
Well, the problem here is likely tied to companies not getting enough capital and cash flow to stay open. Loans can help you stay solvent and get through hard times, and shouldn't be ignored. However, too many businesses simply don't have a strong enough sense of operational sustainability to stay open. When seeking small business loans, having a robust business plan and a strong sense of operational sustainability are crucial for long-term success. Lenders look for experience and a clear strategy for how you will use the funds to generate income, manage business debt, and ensure profitability. A well-crafted business plan should outline not only how you will meet the requirements for securing a loan but also how you will manage working capital effectively to achieve your financial goals. Understanding the interest rates, sources of funds, and various offers available can help you make informed decisions and demonstrate to lenders that you have a solid plan for future growth.
8. Loan Approval Rates Can Be Quite Low
If you're running a small business and want to apply for a loan from a large bank, it's wise to know the statistics. Data from Zippia reflects about 13.8% of all small company loans getting approved by large banks. Smaller banks provide a 19% approval rating, which is obviously a better alternative for many people. Our team at Capital Bank works hard to boost as many small businesses as possible, providing flexible loan options to our clients.
Keep this statistic in mind when applying: non-bank loans have an approval rating of nearly 25%. That means your chances of success are almost doubled. That said, the SBA provides a much higher approval rate and can typically get you a loan approved far more quickly. To learn more about your banking options with Capital Bank, contact our team today.
9. Non-bank Lenders Are Gaining in Popularity
Data from the Federal Deposit Insurance Corporation shows that in 2016, non-bank loans made up just 19% of all small business borrowing. That amount jumped to 24% in 2017 and has been steadily increasing ever since. Currently, around 32% of all small businesses go to non-bank lenders for their loans. Why is this the case?
Well, non-bank lenders have statistically higher approval rates for business loans, as we've already mentioned. Furthermore, non-bank lenders may have fewer restrictions that they need to follow. Often, they're more adaptable to people with bad credit, though that may vary depending on the lender. While banks still offer plenty of loan options, the interest of business owners may be shifting.
10. Credit Issues Can Impact Your Loans
Have you been denied business loans in the past? Well, there's a good chance that credit issues and bad credit history were to blame. According to the NSBA Small Business Access to Capital Study, about 20% of all loans to small businesses get denied due to credit problems. Credit issues can significantly impact your ability to secure business loans and the terms of those loans. Lenders closely examine your credit history, business and personal, to assess your reliability in repaying borrowed money. Poor credit can lead to higher interest rates, increased fees, and more stringent requirements, all of which can raise the overall cost of financing. Technology has made it easier for lenders to quickly access and evaluate your credit score, making it imperative to maintain good credit. Issues like unpaid invoices, maxed-out credit cards, or late payments can negatively affect your credit score, reducing your chances of loan approval. Moreover, a lower credit score can limit the number of financing options available to you, affecting your ability to make critical business purchases or manage cash flow effectively. Maintaining a strong credit profile is essential for securing favorable loan terms and ensuring your business has the financial flexibility it needs to thrive.
By paying close attention to these statistics about business loans, it should be easier for you to find one that fits your needs without bogging you down for the foreseeable future. Just as importantly, it can streamline your application process, minimize your confusion, and give you the insight that you need into the application process. Please don't hesitate to contact Capital Bank to learn more about these loans to sort out which feels right to you and to minimize potential long-term issues. Our team will work directly with you to find a high-quality loan that fits easily into your needs at a rate you can afford more easily.
