The next big opportunity in small-business lending is the same as the last big opportunity.
It is serving the smaller market and credit-thin business borrowers that banks have spent decades struggling to serve profitably.
In a new November joint release, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, and Office of the Comptroller of the Currency (OCC) released their annual data on small business, small farm, and community development lending. The Community Reinvestment Act (CRA) data, published by the Federal Financial Institutions Examination Council’s (FFIEC), spotlights a lending market in which the number of small-business loans is moving in a different direction from their aggregate value.
Nearly 9 million small-business loans, including originations and purchases, totaling more than $291 billion, were reported by institutions. But per the federal data, small-business loan originations fell 2% in 2025, even as the dollar amount originated increased 4.7%.
And the more revealing number may be buried in the loan-size distribution: 94.6% of small-business loans originated were for less than $100,000, but those transactions accounted for just 43.2% of lending dollars.
That imbalance exposes a central challenge for financial institutions. Smaller loans account for nearly all reported origination activity but generate substantially less lending volume per transaction. Meanwhile, PYMNTS Intelligence research finds that the smallest businesses remain less likely to have credit than their larger counterparts.
Taken together, the findings suggest that, at least for lenders, the next competitive advantage may come not from originating larger loans, but from making smaller ones more profitable.
Read more: Small Business Lending Looks Beyond Credit Scores to Everyday Business Data
More Lending Dollars Don’t Always Mean More Borrowers
The government’s CRA fact sheet offers a useful snapshot of how small-business credit is distributed. Of the 720 institutions reporting lending data for 2025, just 153 lenders with assets of $10 billion or more accounted for approximately 87.5% of small-business loan originations by count, but 69% by dollar amount.
That concentration suggests the economics of small-business lending are already heavily influenced by institutions with the infrastructure and scale to originate large volumes of credit. For banks evaluating growth opportunities, the primary question remains whether the cost of originating and servicing smaller loans fall can enough to make previously unattractive customer segments commercially viable.
Among the challenges facing lenders is the fact that PYMNTS Intelligence found that 57% of financial institutions cite inaccurate or incomplete SMB records as an underwriting obstacle. Outdated information was cited by 52%, inconsistent information by 52% and limited financial histories by 48%. The findings come from a survey of 350 financial institution executives in the United States and United Kingdom, detailed in the PYMNTS Intelligence report “Keeping Score: Why Data Quality Determines Lending Decisions for the Smallest Firms.”
The same research found that the smallest businesses are less likely to have credit available than larger small- to medium-sized businesses, even as overall credit access has improved. A company may have recurring customer payments, predictable seasonal revenue and a healthy transaction history without possessing the documentation or collateral that traditional lending processes favor.
See also: Working Capital Is Becoming a Priced Portfolio for CFOs
Better Data is Changing the Economics of Smaller Loans
For years, small-business lending innovation has focused heavily on speed. Digital applications, automated approvals and faster funding have made credit easier to obtain, particularly through FinTech platforms.
For banks, this created two distinct problems. The first is informational: determining whether a borrower is creditworthy when conventional financial indicators offer an incomplete picture. The second is economic, and centers around deciding whether the potential revenue from a relatively small loan justifies the cost of acquiring, underwriting, monitoring and servicing the customer.
Technology could help address both. Cash-flow underwriting allows lenders to examine the timing, consistency and composition of business revenue. Payment-data analysis can provide additional insight into transaction activity, customer concentration and operating patterns. Embedded lending can reduce distribution friction by offering financing through platforms where businesses already manage payments, commerce or financial operations.
Together, these capabilities could help lenders identify borrowers that traditional models overlook while reducing the cost of evaluating them. Still, that outcome remains to be demonstrated across credit cycles. Alternative data can improve visibility without necessarily improving prediction, and automated lending introduces its own compliance, privacy and model-governance considerations.
But the market is ready for these solutions. For smaller businesses, access to financing can determine whether a company simply covers its next operating expense or invests in inventory, equipment, hiring and expansion.
The PYMNTS Intelligence report, “Why Main Street’s Digital Survivors Are Pulling Ahead: Four Years of Small Business Data,” found in May that among the small- to medium-sized businesses seeking outside financing in February, 37% did so as a strategy, 35% did so out of necessity and 28% did so for both reasons.
For banks and FinTechs, the opportunity is to move beyond selling credit as an isolated transaction and toward delivering financing as part of a broader financial relationship.
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