60+ Small business lending statistics & industry trends for 2024

Small businesses are arguably the forgotten middle child in our finance system. Private consumers have seen real advancements thanks to mobile banking, easier money transfer, and more democratic access to financial markets. 

Meanwhile large companies have always enjoyed preferential treatment from banks. Large companies mean big profits, and banks go out of their way to cater to their needs.  

But despite making up 99% of all businesses in Europe (and 99.9% in the US), and providing 60-70% of all jobs, small-to-medium businesses continue to struggle with financing and cash flow challenges. The SMB loan market isn’t providing, and it’s having a real impact on global economies. 

This article uses statistics to show the ongoing issues with small business lending worldwide. We then also identify some reasons for optimism, and look ahead to what the lending ecosystem could deliver in the near future. 

But let’s begin with a look at small business cash flow and financing in general. 

Small business cash flow statistics

It has become almost cliché now to describe working capital as the “lifeblood of small business.” But it’s nonetheless true: run out of capital, and your business can’t survive for long. 

And small businesses in particular can struggle to find the funds they need. 

• Globally, 40% of micro, small, and medium companies have unmet financing needs. (World Bank)
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• In the US, 77% of SMB owners worry about their ability to access capital. (Goldman Sachs)
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• 82% of American small businesses fail due to cash flow issues. (SCORE)
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• 29% of those small business failures occur because cash runs out. (SCORE)
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• Meanwhile in the EU, 25% of firms report that access to finance is a major concern for their business. (European Central Bank)
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• North African companies face the greatest disparity between financing needed versus offered. 88% of these companies do not have their financing needs met. (World Bank)
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• The finance gap for SMBs worldwide is estimated at $5.7 trillion, but could be as high as $8 trillion. (International Finance Corporation)

Payment delays continue to cause issues

Also known as “Days Sales Outstanding,” the amount of time it takes to be paid for products or services delivered can be a real burden on SMB growth. 

• 27% of British SMBs are owed between £5,000 and £20,000 in unpaid invoices. (NatWest)
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• 55% of these SMBs say that the amount of unpaid invoices increased during 2023, 31% spend more than 21 hours per week chasing customer payments. (NatWest)
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• In France, only 50% of businesses paid their suppliers without delay in 2023. This is an all-time high, and shows just how significant payment delay issues can be. (L’Observatoire des délais de paiements)
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• Across Europe, more than 80% of SMBs face payment delays, hindering their own ability to grow and invest in staff or resources. (Renew Europe)

Getting paid on time is obviously vital. But long payment delays are less of an issue when your small business has the working capital funding it needs. Which for many SMBs isn’t the case. 

SMBs struggle to access the funding they need

Let’s look first at the financing situation in the European Union: 

• The European Investment Bank provided around €20 billion for SMBs in 2023. These EIB funds are delivered via intermediary banks. (European Investment Bank)
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• Access to public financing support increased during and following the Covid-19 pandemic, but has sharply declined in the years since. (European Investment Fund)
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• The cost of borrowing for SMBs fell steadily from around 6% in 2008 to 1.35% in 2021, before rising sharply to 4.99% in 2023. These rising borrowing costs have led to a significant decrease in lending volume. (European Investment Fund)
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• 77% of German small businesses report stable or growing revenue, making them “viable for financing.”

In the United Kingdom, we see an odd dynamic. Small businesses tend to have a good credit record and repay debts on time, but the conditions for borrowing are still difficult. 

• In 2022, 39% of UK SMBs sought external financial assistance of some kind. (Ipsos)
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• In 2022, one fifth of SMB loan applications were rejected, despite the small businesses having “good or excellent” credit scores. (NerdWallet)
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• 76% of UK SMBs that took financing in 2023 stated that they were “not concerned” about their ability to repay on time and in full. (British Business Bank)
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• Total business loan repayments in the UK in 2023 were higher than the total value of loans granted. (Finder)
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• In 2023, £516 billion was lent to businesses in the UK. Of this, only £59.2 billion went to small businesses. (Finder)

It’s a similar story in the United States. 

• 79% of small businesses found it difficult to access affordable capital. (Goldman Sachs)
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• But most companies have less than $100,000 in debt, even though the average small business loan amount is approximately $663,000. (Forbes)

These statistics show that, despite a good track record of loan repayments from small businesses, there’s still a hesitancy to lend to them and a challenge for SMB owners to find suitable loans. 

The state of small business lending

So what does the small business lending environment actually look like? Let’s see how (and why) small businesses request funding today, before looking at some exciting future developments. 

SMB lending in the UK

• Business loans are the most popular form of small business funding according to one survey. 27% of entrepreneurs chose this method, followed by loans from friends and family, personal savings, investors, and crowdfunding respectively. (Forbes)
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• In 2023, UK small businesses were more likely to apply for bank overdrafts, rely on credit card finance, or borrow from their own directors than rely on bank loans. (British Business Bank)
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• 58% of UK SMBs say that working capital requirements are their main reason for seeking financing. 31% do so to purchase assets, while 28% use financing to fund growth. (British Business Bank)
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• Bank lending to UK SMBs peaked in 2020 (due to Covid) and has been steadily declining. Gross bank lending decreased by 15% in real terms between 2022 and 2023. (British Business Bank)
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• The number of SMB loans successfully granted by the UK’s seven largest banks fell to 45% in Q2 2023. Between 2012-2020, this average percentage was above 80%. Bank of England agents report that banks were increasingly less confident in business clients’ ability to repay loans. This is despite the fact that the gross total of repayments for business loans was the second highest on record. In other words, business customers are repaying loans quickly (perhaps due to high interest rates), yet banks remain sceptical of their ability to do so. (British Business Bank)

SMB lending in Europe

• 70% of external SMB funding in Europe comes from traditional bank loans. (PwC)
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• One survey of EU SMB leaders found that banks’ willingness to provide them loans declined overall from 2022 to 2023. This was most pronounced in France, Finland, and Belgium. In Greece, Italy, and Ireland, SMBs reported an increased willingness from banks to provide funding. (European Investment Fund)
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• Microenterprises are less likely to use bank loans than larger SMBs due to higher rejection rates, fear of rejection, stringent collateral requirements, high interest rates, and bureaucratic hurdles. (European Investment Fund)
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• Overall, there’s a “bank financing gap” of around €15 billion for SMBs in Germany alone. (PwC)

Small business lending in the US

• 43% of small businesses applied for a loan in 2023. (Fed Small Business)
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• Yet when asked how they plan to fund their small businesses, owners planned to use business credit cards (54%), personal savings (44%), or personal credit cards (31%) before turning to bank loans (29%). (FinImpact)
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• The average SBA loan size in 2023 was $479,685. (Bankrate)
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• The maximum SBA loan interest rate ranges from 8-13% for microloans, up to 13.5-16.5% for SBA 7(a) loans. (National Business Capital)
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• In January 2024, 53% of small business owners said they couldn’t afford to take out a loan due to interest rates. (Goldman Sachs)
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• Community banks play an outsized role in SMB lending in the US. Small business loans (less than $1 million) account for 12.6% of small community banks’ assets, compared with just 3.6% for the largest US banks. (Federal Reserve Bank of St Louis)

• 82% of small business applicants received at least partial loan approval from a small bank, compared with just 68% approval at large banks. (Federal Reserve Bank of St Louis)

The above statistics give us a few clear takeaways: 

1. Small businesses have a real need for capital assistance, and many fail due to cash flow issues. 
2. Small business financing has, until now, been heavily led by traditional bank-style loans. 
3. Despite special programs and incentives introduced during and following the Covid-19 pandemic, SMBs are finding it increasingly difficult to secure fruitful loans. 
4. There’s a significant funding gap for small businesses worldwide.

We’ll look shortly at the technology and process improvements that promise to help fill this gap and democratize business financing. But first, here are some very telling statistics about the process a typical small business goes through to secure funding. 

The traditional SMB lending process

• The traditional small business loan underwriting process involves 25-30 steps. (Fintech Takes)
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• In the US, SBA loans can take 30-90 days to deliver. This typically includes 10-14 days for underwriting, 10-21 days for approval, and 14 days for approval. (NerdWallet)

Already small businesses have turned to alternative lending as a way to access loans faster and more flexibly. 

• The approval rate for SMB loans from banks is between 14.3% and 20.1%, while the approval rate for loans from alternative lenders is 26.1%. (Onyx IQ)
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• Total transaction value in global alternative lending was projected to reach US$334,277.7 million in 2021, led by crowdfunding (US$241,582.2 million).

Even with alternative sources available, the sheer amount of time and admin involved continues to bog down SMB lending. But new technology - led by automation and AI-enhanced decisioning - is poised to change this dynamic for good. 

• Modern fintech providers can underwrite, originate, and approve small business funding in less than 30 seconds. (Defacto)
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• As a result, automated underwriting “has nearly zero marginal cost.” (McKinsey)

With those two figures as an appetizer, let’s turn now to the future of small business lending, and the new possibilities brought forth by embedded finance. 

Embedded finance & the future of small business lending

The statistics above paint a picture of a banking sector that’s poorly suited to small businesses and perhaps unwilling to change. But that’s not exactly the case. 

Banks recognise the need for new technologies and more efficient processes, and are planning accordingly.

• 79% of global banks believe banking will soon be “deeply embedded” in consumer and commercial activities. (PYMNTS)
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• The potential loss of SMB lending revenue if banks do nothing is estimated at $25 billion (Accenture)
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• 47% of SMBs would gladly pay more for modern, embedded finance than more traditional banking services. (Accenture)
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• 75% of global banks plan to connect with an average of three fintechs within the next 18 months. (Finastra)
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• Financial institutions spent on average $378 million on digital transformation worldwide in 2023. European institutions averaged $886 million. (Finastra)
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• 88% of senior bank executives believe that technology, automation, and digital investments are the top priorities for 2024. (Bain)
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• Global banks have already increased AI talent by 9%. (Fintech News)

And platform providers recognise the revenue potential that embedded finance provides. 

• 47% of non-bank platforms plan to offer embedded finance to retain customers for longer and increase their “lifetime value.” (Accenture)
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• As a result, the global embedded finance market is forecast to exceed $100 billion by the end of 2030. (McKinsey)
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• Accenture’s estimate is even more bullish. The firm says embedded finance could amount to $124 billion by 2025, only accounting for the share of SMB banking revenue it could capture. (Accenture)

Embedded lending provides the experience SMBs want

Embedded lending gives businesses access to funds through their existing platforms and services. Rather than a costly, time-consuming application through a traditional bank, they can apply for fast funds through their cash management platform or invoice processing tool, as just two examples. 

This flexible, fast, and fair process is where lending is heading. 

• 80% of the European SMBs want access to payments, foreign exchange (FX), accounts, cards and more, directly through their business software platforms. Only 44% think traditional banks can effectively meet their financial needs. (Airwallex)
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• Many UK banks already fully automate loans up to US$100,000. (Deloitte)
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• 43% of consumers would move to different products or providers if lending services were embedded. (Visa/PYMNTS)
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• Embedded lending is expected to grow at a 19.6% CAGR, from US$7.65 billion in 2024 to US$45.74 billion by 2034. (Future Market Insights)
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• Embedded lending is projected to account for up to 25% of retail and SMB lending by 2030, growing rapidly from just 5-6% in 2023. (McKinsey)
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• Embedded lending is already associated with higher profit margins. Lenders with better profit margins are 23% more likely to offer embedded lending services. (Visa/PYMNTS)
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• There is still huge room for growth in this market. In the consumer sector, 83% of lenders offer embedded services. By contrast, only 45% of SMB lenders do so. (Visa/PYMNTS)

All of this leads to one clear conclusion: now’s the moment for both customers and providers to embrace embedded lending, for the benefit of all. 

Small business lending: ready to change for the better

The state of small business lending has been awkward at best for decades. Banks have struggled to find smart, efficient ways to identify risk and serve profitable customers. SMBs themselves have struggled to build their case and prove their value as potential borrowers. 

The result has been a slow, difficult process for both sides. And in too many cases, small businesses got left behind. 

But a new normal is coming for banking, and lending in particular. We’ll soon see a more nimble, user-friendly environment, where viable small businesses can get the financing they need in relative ease. 

‍Defacto is proud to partner with banks, fintechs, and non-finance platforms to build lending into core business systems. See how we do it and work with us towards a better future for SMBs.