Many small businesses need financing for various reasons. Whether you’re looking to expand operations, purchase real estate, increase working capital, or obtain inventory or equipment, getting a small business loan can help. Maybe you’re even looking for capital to start your business for the first time. Small business financing is a popular and viable option for many business owners in any of these situations. You can brush up on some facts and statistics relating to small business loans to give you an idea of how they work.
Facts About Small Business Financing
Here are some facts to keep in mind as you look into small business financing:
- The average loan from the U.S. Small Business Administration (SBA) is $371,000, with the lowest being around $5,000 and the highest being $5 million.
- The average business loan from the banking industry is usually around $130,000 to $140,000, but can go as high as $250,000.
- In general, small businesses are more dependent on owner capital than bigger companies, which rely more on external debt.
- The majority of small businesses use some sort of financing during their operations.
- Floating rate loans are typically lower than fixed rate loans.
- Borrowing money costs more for small businesses than bigger businesses.
- 37% of small business get financing through commercial banks.
- Commercial banks are the main source of external small business financing.
- 56% of small businesses utilize traditional financing, including mortgage loans, a line of credit from a bank, or a lease.
- 28% of small businesses use business credit cards, while 39% use personal credit cards.
- The types of lenders that provide small business loans include banks, credit unions, private institutions, venture capitalists, and angel investors.
- Business owners must prove their company’s ability to repay loans, an adequate amount of collateral, and its credit worthiness.
- Small business loans from banks have interest rates that are typically two or three points higher than the prime rate.
- The average business may have to wait up to a week to hear from a bank about their credit application.
- The likelihood of getting a small business loan is related to your credit score.
- Loan terms from the SBA are typically between 10 to 20 years for repayment.
- Repayment terms for bank loans are usually between 3 to 5 years with balloon payment structures.
- The 7(a) Loan Program from SBA is the most common source of small business financing from the SBA. This loan provides financial resources to businesses that have special requirements.
- The CDC/504 Program exists to finance real estate or equipment.
- The SBA Microloan Program provides short-term loans of small amounts to small businesses and certain kinds of child-care centers that are not-for-profit.
- The SBA offers disaster loans to all-sized businesses, non-profit organizations, renters, and homeowners at low interest rates. These loans can be utilized to replace or repair personal
- property, equipment and machinery, real estate, business assets, and inventory.
- You must be seeking a loan for sound business purposes. You can’t get an SBA loan if your business is based on gambling, pyramid sales, passive investment, speculating, or lending.
- You may be required to provide documents including credit history, financing statements, detailed business plan, cash flow projections, and guaranties from all business owners.
Get the Financing You Need
Capital is the lifeline of all businesses. Financing is one of the most common ways to get needed money for your startup or existing business. Now that you know more about the facts surrounding small business financing, you might be clearer about your goals and strategy. If you need to expand, invest in new equipment, or get relief from a disaster, look into your options for securing financing for your business.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.