Editor's note: We earn commission from Forbes Advisor partner links. Commissions do not influence our editors' opinions or ratings.
Business loans are essential for entrepreneurs, startups, and established companies looking to grow or overcome short-term financial challenges. This flexible financing is typically offered through banks, credit unions, and online lenders, and comes with a variety of interest rates, repayment terms, and eligibility requirements.
Small business loans can be used for a variety of purposes, including financing new equipment or inventory, expanding your business, hiring new staff, consolidating debt, etc. Whether you're a small business owner looking to expand your reach or a large corporation looking for financial stability, a business loan can be a viable option to help you achieve your goals.
Featured Partner Offers
Loan amount
$5,000 to $250,000
Loan amount
$10,000 to $500,000
April
Purchase rates start from 1.11%
3
American Express Business Blueprint™
Loan amount
$2,000 to $250,000
Monthly fee
Varies depending on loan term
A FICO score of at least 660 at the time of application
3
American Express Business Blueprint™
Financial Statistics of Small and Medium Enterprises
Small businesses are the backbone of many industries and communities, yet recent data shows they are facing significant financial challenges: According to the Federal Reserve Bank's Small Business Credit Survey, a staggering 59% of small businesses report fair or poor financial condition.[ ]
This number has increased significantly in recent years, with 85% of small businesses experiencing financial difficulties in 2021 alone.[ ] The increase of nearly 20 percentage points since 2019 is a trend that highlights the continuing challenges facing small businesses.
Moreover, only 42% of SMEs have their financing needs met, revealing a significant gap in financial services for these businesses.[ ] The majority of them rely on large or small banks as their financial service providers. This high reliance on banks can be attributed to a lack of knowledge about other funding options, such as alternative lending institutions and angel investors.
Small and medium-sized enterprise loan statistics
According to the Federal Reserve's latest report, the average small business loan is about $663,000.[ ] Despite the availability of capital, the percentage of companies seeking traditional financing has declined in recent years.
In 2019, about 43% of small businesses applied for loans, but in 2020, that number dropped to 37%.[ ] Only 34% of SMEs applied for loans in 2021. While the reasons for the decline in traditional funding are unclear, it indicates that SMEs are opting for alternative funding options such as crowdfunding, peer-to-peer lending and fintech platforms.
Traditional fundraising is becoming less popular among businesses seeking capital, while the process is also becoming more difficult: Only 31% were able to raise all the funding they wanted in 2021, compared to 51% in 2019.[ ] Overall, the percentage of applicants receiving the full amount of funding they applied for has decreased.
The good news is that outstanding debt for small businesses has fallen from 80% in 2020 to 74% in 2021, with most businesses owing less than $100,000.[ ] So, despite the challenges, companies are finding ways to navigate financing and manage debt effectively.
Reasons to apply for a business loan
A Forbes Advisor survey sought to discover how business owners used the funds from their most recent business loan, with respondents being able to select up to three options.
According to the survey, a significant proportion of business owners are using the funds for business expansion, with 42.4% selecting this option as one of their top three choices.[ ] Purchasing equipment came in second with 29.4% of respondents, while marketing and advertising accounted for 28.6% of loan amounts.[ ]
The next most common reason was business franchising, cited as a driver by 27.6% of respondents, followed by buying/renovating commercial property at 26.8% and acquiring a business at 25.4%.[ ] Other common reasons include:
Inventory purchases (24.2%), cash flow from daily operations (22.4%), payroll expenses (21.8%), and debt consolidation/refinancing (18.6%).[ ]
These findings illuminate priorities for executives looking for ways to grow and develop their companies. They also provide valuable insights for lenders and investors looking to better understand their customers.
How long does it take to use business loan funds?
Entrepreneurs know that financing is essential to the success of their business. But getting a loan isn't enough. It's also important to use the funds in a timely manner. According to a Forbes Advisor survey, most business owners took less than six months to spend the money from their most recent loan.[ ]
Specifically, the survey found that 21% of respondents took five to six months to spend their funds, 19% took three to four months, and 16% took one to two months.[ ] Interestingly, only 5% of respondents said they ran out of funds within a month.[ ]
These figures start to drop at the seven- to eight-month mark, with only 13% of respondents running out of money during this period.[ ] Only 4% took more than a year to spend their funds.[ ]
Small business loan application statistics
According to Federal Reserve data, the rate at which small businesses are applying for traditional loans has been declining continuously in recent years. The figures show that the percentage of small businesses seeking traditional loans fell from 43% in 2019 to 37% in 2020, and further to 34% in 2021.[ ] Interestingly, the few SMEs that applied for loans were less likely to receive the funding they desired.
The percentage of applicants who received the full amount of funding they requested fell from 51% in 2019 to 36% in 2020, and then further to 31% in 2021.[ ] Small businesses owned by people of color, businesses with few employees, and businesses in the leisure and hospitality sector were the least likely to receive the full loan amount they requested.
Recent data reveals that large and small banks are the main sources of financing for SMEs, with 43% and 36% of businesses respectively relying on these financial institutions for financing.[ ] However, last year saw a slight increase in the number of small businesses choosing to apply for loans through online lenders.
In 2021, 23% of all small business loan applicants chose an online lender, compared to 20% in 2020.[ ] Meanwhile, 17% of small businesses applied for loans from finance companies, 8% from credit unions, and just 3% from community development financial institutions (CDFIs).[ ]
Small Business Lending Demographics
The U.S. Small Business Administration (SBA) 7(a) loan is the flagship SBA loan program and includes multiple financing options. This popular program offers loans of 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 new buildings.
We looked at demographic trends in 7(a) loan lending based on race, gender, industry and state. Here's how approval rates and approved loan amounts fared across these categories:
Race-Based Approval for SBA 7(a) Loans
Recent data shows that white business owners receive the largest share of 7(a) loans, making up a staggering 42.4% of approved loan amounts.[ ] This equates to a total loan amount of just under $10.9 million. Those who did not state their race received 25.2% of the loan amount, or about $6.5 million.[ ] Next came Asian business owners, who received 20.6% of the loan amount, or just over $5.3 million.[ ]
The lowest percentages of total 7(a) loans were received by Hispanic, Black or African American, and American Indian or Alaska Native business owners at 7.2 percent, 3.9 percent, and 0.7 percent, respectively.[ ] This data reveals a stark lack of equity and inclusivity in the lending industry.
SBA Loan Approval Rates by Gender
Male-owned businesses have a clear advantage when it comes to receiving 7(a) loans: These businesses receive an overwhelming 71.6% of the loan approvals, totaling about $18.4 million.[ ]
Meanwhile, businesses that are 50% or more owned by women received just 14.8% of the funding, or just over $3.8 million.[ ] Businesses that were less than 50% women-owned received a similar amount: 13.6% of the loan funds, totaling about $3.5 million.[ ]
These figures show a clear disparity in the distribution of credit and draw attention to gender inequality in the business world.
SBA Loan Approvals by Industry
In 2022, the largest share of 7(a) loans were provided to businesses in the accommodation and food services industry (19.20%), followed by retail (14%) and health and social assistance (10.30%).[ ] Among these industries, the demand for financial assistance was highest in the small and medium enterprises sector.
Public administration, public works and business management sectors had the lowest share of loans at 0%, 0.10% and 0.20% respectively.[ ] Interestingly, although the Corporate Management sector has a relatively low percentage of loans and loan amounts, it has the highest average loan amount, at approximately $1.4 million.[ ]
These statistics underscore the importance of financial assistance tailored to each industry to meet the specific needs of small businesses. With the help of targeted lending programs like 7(a), small businesses can get the capital they need to thrive and navigate an ever-changing economy.
SBA Loan Approvals by State
The SBA has documented significant trends in loan approvals across U.S. states over the past five years, with data from 2018 to 2022 showing Georgia ranking first on the list with the highest average 7(a) loan approval amount at $840,145.[ ] The top five states were closely followed by Texas, California, Louisiana and Alaska, all of which saw notable increases in loan approvals.[ ]
Hawaii came in last with the lowest average approval amount at $213,505. Maine, Massachusetts, Ohio and New Hampshire rounded out the bottom five states.[ ] These results indicate that conditions vary across states when it comes to borrowing opportunities and financing challenges for small businesses, making it essential for entrepreneurs to stay on top of these trends.
Of the top 10 states with the highest five-year average 7(a) loan approvals, four of the 10 most populous states make the list, suggesting that more populous states may have an advantage in securing larger loan amounts.
An analysis of five years of 7(a) loan data reveals a significant decrease in the average loan approval amount for 2022. The previous year, in 2021, the national average 7(a) loan amount was up to $704,581.[ ] However, in 2022, this average will plummet to $538,903, a decrease of more than $165,000 compared to the previous year.[ ] Fluctuations like these remind us of the importance of staying on top of data trends when making financial decisions.