Where Should Small Business Go for Loans?

Date: March 10, 2016

A new survey reveals where small businesses have the best luck when getting loans.

If you’re a small business owner looking for a loan, where’s your best bet?

Turns out small banks are more likely to offer a loan than big banks, according a new survey conducted by the Federal Reserve.

Fed banks in New York, Atlanta, Boston, Philadelphia, Cleveland, St. Louis and Richmond, Virginia, surveyed nearly 3,500 small businesses in 26 states about economic conditions and lending habits of the small biz community.

READ NFIB’s Small Business Guide to Getting a Loan. It’s free!

What did they find? Here are the top four takeaways from the survey—and what it means for small business, according to The Wall Street Journal:

1. Small businesses have better luck with small banks than big banks.

Overall, almost 80 percent of small businesses requesting loans in 2015 received at least some financing. However, small banks were more generous than big banks.

Seventy-six percent of small businesses received loans from small banks, compared to 58 percent of small businesses that requested funds from big banks. 

2. Small businesses that received financial help from small banks were more satisfied than those who went to big banks.

Not only do small banks tend to give more loans, but they also receive better satisfaction rates than big banks, according the survey.

Only 51 percent of businesses receiving loans from big banks were satisfied, where as businesses with loans from small banks reported a 75 percent satisfaction rate.

3. Big banks have been lending less money to small biz.

In 2006, 10 of the largest banks financing small business lent $72.5 billion dollars to small biz collectively. Since then, there has been a steady decline in cash flow to small business owners. These large banks only lent $44.7 billion to small businesses in 2014—a 38 percent decline since the peak in 2006.

4. More small businesses seek out online lenders.

Online lenders gained popularity among micro businesses—firms with revenues of up to $100,000—in 2015. Almost a third of the micro firms surveyed said they requested online financing, compared to a mere 6 percent of larger small businesses.

However, satisfaction with online lenders continues to be low: Only 15 percent of small businesses reported to be satisfied due to high interest rates and inconvenient payment schedules.

Despite lower satisfaction rates, online lending could be the next big trend in small business loans—especially as big banks begin to use online lenders, according to The Wall Street Journal.

In fact, J.P Morgan recently partnered with OnDeck to help finance some of the bank’s 4 million small business customers.

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