With another Small Business Saturday in the books, small- and medium-sized businesses (SMBs) are still kept on their toes by the yearly spike in sales this time of year. For many, that means seeking external financing to fund an increase in business.
The latest data on small business finance suggests entrepreneurs luckily have a range of options when it comes to seeking working capital as large institutional lenders continue to increase their SMB loan application approval rates. Other data suggests speed of accessing financing is critical to small business owners, and a major factor behind their decision to seek working capital via alternative lenders or credit cards.
New reports from Biz2Credit, Reliant Funding and Mercator take a look at how small businesses are accessing external financing towards the end of the year as the holiday rush descends. PYMNTS has all the key data from the research below.
25 percent of SMB loan applications at large banks were approved in October, according to the latest research from Biz2Credit. That means large banks (with $10 billion-plus in assets) have boosted their SMB loan approval rates to a new post-recession high, researchers said. According to Biz2Credit CEO Rohit Arora, the statistic shows how far bank lending to small businesses has come since the depths of the recession, during which large banks only approved about one-tenth of SMB loan applications.
56.8 percent of SMB loan applications were approved by alternative lenders, according to Biz2Credit. While this category of lender still approves the most small business loan applications, the October data shows continual declines in alternative lender approval rates. Similarly, small banks saw their SMB loan application approval rates drop in October to 48.9 percent — again, still high, but continually decreasing.
12 percent of SMB owners told Reliant Funding they are aware of alternative lending and have used it. Nearly half said they are at least familiar with alternative lending. Reliant's “November Small Business Report” found that of the small businesses that have accessed financing via alternative lenders, three out of five say they chose this method because it provided financing right away, compared with traditional lenders. Still, 39 percent of SMB owners told Reliant that they have never even heard of alternative lending.
42 percent of SMBs that use alternative finance say they use it to buy inventory, while more than one-fifth said they use it to replace or buy new equipment. One-fifth also said they use it for marketing initiatives, Reliant Funding found.
70 percent of small business owners say they pay the full balance of their credit cards every month, and 20 percent say they pay more than the minimum payment — a promising trend that suggests SMBs are not willing to bury themselves in credit card debt, Reliant found.
75 percent of SMBs say they have delayed routine purchases because of cash flow problems, according to the “Business Credit Cards and B2B Payments: More Credit, Please” report released by Mercator, as recently reported by the Credit Union Times. Analysts said this cash flow crunch leads small businesses towards credit lines via commercial credit cards and loans. Eighty percent of SMBs surveyed said they have a credit card product for their business, though, and contrary to Reliant's research, less than half told Mercator they pay the full balance on their cards every month.