The average small business loan amount for small businesses in the United States in 2020 was $71,072. This compared to fixed-rate loans, which had an average balance of $66,917 in the same year.
These figures were uncovered by research by small business resource and research provider, AdvisorSmith.
Average Small Business Loan Amount in 2020
The study was designed to discover the average loan amount for small businesses in the US. It involved AdvisorSmith examining recent data by the Federal Reserve’s Small Business Loan Survey. 105 lenders were surveyed.
The average loan amount for loans guaranteed by the Small Business Administration’s (SBA) 7 (a) loan program in 2020 was $567,599. While fixed-rate loans were an average $66,917, variable-rate loans had an average balance of $150,647.
Traditional Banks Failing to Help Small Businesses
The study is interesting as it underscores the reliance among small businesses on alternative loan sources. With the Paycheck Protection Program (PPP) running out, small businesses are having to turn to alternative solutions to secure funding.
As Hitendra Chaturvedi, Professor of Practice, Supply Chain Management at Arizona State University, said in relation to the major trends occurring in the small business lending market: “The biggest trend happening in small business lending is the arrival of technology and data-driven business models, or fintech companies and COVID-19 is accelerating this. The sector that was hit the hardest was the small business, and the traditional banks failed to help them (one just needs to look at the troubled PPP rollout), as they are too big to be nimble and fintech stepped in to capitalize on this opportunity.
New Options for Small Business Loans
AdvisorSmith’s research confirms the growing popularity to source small business loans from alternative lenders. Such lenders typically operate online and offer loans with more flexible terms and, in some cases, quicker underwriting compared to traditional lenders.
The research lists the leading alternative lenders, and the range of loan amounts they typically lend.
Topping the list is Bluevine, which provides loans between $5,000 and $250,000. Credibly is another leading alternative lender, which lends small business loans of between $5,000 and $400,000. For small businesses looking for lower loan amount, Lendio is a leading provider, offering small business loans starting at $1,000 and going up to $500,000.
Traditionally, alternative lenders have been associated with charging higher interest rates. Though as AdvisorSmith notes, the space has become more competitive and, as a result, interest rates and fees have come down.
Alternative Underwriting Sources
These lenders often use alternative underwriting sources in loan applications, such as a business’s credit card sales and its accounts receivable. As such, small business loans from alternative lenders are popular among small businesses that may not quality for traditional bank lending.
The research validates how the small business lending and borrowing landscape is changing in the United States. As traditional means such as PPP and bank loans become increasingly difficult to secure, small businesses are turning to alternative methods that are driven by technology and are inherently more flexible.
With an abundance of alternative, flexible and data-driven loans available, it is important small businesses looking to secure funding carry out sufficient research to help identify the most suitable loan for their unique requirements.
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Unfortunately, women continue to suffer from discrimination and the size of loans they receive is smaller than that of men, although the gap has recently narrowed.