Gen Z Small Business Owners Get Personal for Business Loans

At a time when every financial decision counts, many small to medium-sized businesses (SMBs) can at least take some comfort knowing there are a wide variety of borrowing tools available if needed.

Today’s entrepreneurs can choose from reward-earning credit cards; merchant loans; bank loans; buy now, pay later (BNPL) products; lines of credit and more.

But, according to “SMB Borrowing Dynamics: Trends, Tools and Decision Drivers,” a PYMNTS Intelligence and U.S. Bank collaboration, SMBs need to consider a variety of factors before selecting the borrowing tools that make sense for them.

The size of a company, its revenue levels, leadership goals, cash flows and expenses must all be taken into consideration. SMB executives must also consider how flexible and accessible they want their borrowing options to be.

Different priorities shape the final decision. For example, while 73% of all SMBs surveyed use revolving credit, low-revenue SMBs (those earning less than $1 million annually) use fewer borrowing tools, on average, than their high-revenue counterparts (those earning $10 million or more a year). In fact, low-revenue SMBs tend to prioritize immediate working capital needs and financial stability relatively more than high-revenue SMBs, which focus more on business expansion and growth objectives.

In evaluating and using borrowing tools, 75% of SMBs cite the availability and accessibility of funds as a key concern, underscoring SMBs’ basic but essential need for flexible financing solutions. Seventy-one percent, meanwhile, point to financial considerations, such as favorable payment terms (33%), lower borrowing costs (26%) and the potential to boost credit scores (23%) as important. Relationship and trust factors are significantly less important, with only 14% of SMBs citing them as a top consideration.

SMB preferences for selecting borrowing tools also appear to be shaped by generational perspectives.

For instance, as the figure above shows, 37% of SMBs owned by baby boomers and seniors emphasize the importance of credit availability and accessibility, whereas businesses owned by Generation Z and millennials are less swayed by those features, at 28% and 29%, respectively.

Financial considerations, however, are more important for SMBs owned by millennials (34%), bridge millennials (31%) and Generation X (33%), compared to baby boomers and seniors (24%) or Gen Z (23%).

Interestingly, even though only a few years separate millennials from Gen Z SMB owners, data shows that the younger entrepreneurs tend to value relationships and trust in their FIs highly, with 22% saying these are top factors — nearly double the 12% share of millennial owners.

This data offers insights for lenders seeking to work with SMBs. Namely, lenders should factor in which preferences appeal to the business owner before suggesting products.