Main Street Monday – Small Business Financing Approvals Surpass Pandemic Levels

March 27, 2023

Delaney Sexton
Contributing Editor

Main Street Monday – Small Business Financing Approvals Surpass Pandemic Levels

“The 2022 survey also marks the first since 2020 in which firms were more likely to say they sought traditional financing rather than pandemic-related funding. As pandemic related funding programs ended, the data show an accompanying rise in the share of firms that sought traditional financing in the form of loans, lines of credit, or merchant cash advances. The share of these applicants that were fully approved rose year-over-year but lags pre-pandemic levels,” reads the 2023 report released by the Federal Reserve Banks’ based on small business surveys.

Here are the facts about financing from the report:

• In 2022, 40% of small businesses applied for traditional financing, a higher percentage than in the previous five years.
• The top reason that two-thirds of small businesses cited for applying for financing is to meet business expenses.
• This was followed by more than half of respondents applying for financing to expand the business, pursue new opportunities, or acquire business assets.

• The three most popular forms of financing businesses applied for were lines of credit (43%), business loans (34%), and SBA loans/lines of credit (23%).

• 43% of small businesses applied to a large bank, 30% applied to a small bank, 22% to an online lender, and 13% to a finance company.
• A majority of borrowers with low credit risk applied to a large bank (44%), and a majority of borrowers with medium to high credit risk applied to an online lender (37%).
• When deciding where to apply, most applicants based their decision on an existing relationship with a lender.
• Borrowers who applied to an online lender most frequently cited their chances of being funded and the speed of funding as their reason for applying to an online lender.

• More than half of applicants were fully approved for financing, a quarter were partially approved, and 21% were denied.

• Merchant cash advances (90%), auto or equipment loans (87%), and mortgages (85%) were most likely to fully or partially approve applicants.
• Borrowers were approved for full or partial financing for business loans 66% of the time and 64% of the time for SBA financing.

• The highest rate of full or partial approval was at small banks (82%). Finance companies (76%) and online lenders (71%) had the next highest rates of full or partial approval.
• In 2022, all sources of financing had an increased rate of approval compared to 2020 and 2021.
• Rates of approval were lowered for small businesses of most revenue sizes and industries.
• Applicants reported the fewest challenges at small banks with only 40% reporting challenges.
• Online lenders were cited with high interest rates and unfavorable repayment terms as the top challenges for borrowers.

Small Business Credit Survey, Federal Reserve Banks