The Worst Month to Get a Small Business Loan

Date: December 17, 2015

A new study shows that certain months can be pretty frigid for small business owners seeking loans.

What a difference a month makes for small business owners in need of a loan.

December was recently revealed to be the worst month for applicants as it tends to average the lowest acceptance rate (2.9 percent), according to a new NerdWallet study. What’s more, the few who do get approved for a loan in December get punished with the highest average interest rate of the year at 16.34 percent.

BECOME A LOAN EXPERT: Check out NFIB’s free e-book guide to getting a loan.

In contrast, November prevailed as the best month for borrowers. It has the highest acceptance rate (6.6 percent) and carries lower risk premiums (15.54 percent).  

NerdWallet analyzed nearly four years of data on small business loans from Lending Club, the largest online peer-to-peer lender. The study, spanning from January 2012 to September 2015, looked at 177,451 Lending Club applications—both accepted and rejected—for small businesses.

Why December Is so Cold

December’s poor ranking could be tied to two things: poor borrower creditworthiness and inventory.

Lending Club doesn’t alter its lending standards month to month and ranks applicants from “A,” the highest quality, to “G,” the lowest.

“In December, borrowers who receive grades of A, B or C make up 36.1 percent of approved loan applications—one of the lowest levels in the year,” according to the NerdWallet report.

In turn, the lender raises premiums for those who are approved as a way to compensate for the higher risk.

There’s also the timing of business inventories, and the biggest inventory increases happen, on average, in October.

“If a business takes delivery of inventory in October and suppliers require payment within a certain period—in 60 days, for example—those payments would be due in December,” NerdWallet notes. “Some businesses facing that cash crunch may need to turn to a small-business loan to cover costs.”

However, all is not bad for long: The acceptance rate jumps by 1.6 percent in January. 

For more information about small business loans, check out NFIB’s guide to avoiding common loan mistakes.

Related Content: Analysis | Money | Financing Basics | Loans | National

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