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FINANCING SMALL BUSINESS SUCCESS:
THE RISE OF
ONLINE LENDINGPART OF INTUIT’S DISPATCHES FROM THE NEW ECONOMY SERIES
Small businesses are the lifeblood of the American economy, and financing is the
lifeblood of a small business.
Small busin...
The explanation for the sharp decline in
traditional small business loans is simple. Small
businesses are more vulnerable ...
56%
average annual growth rate for
small business online lending
over the next five years.
10.5%
percentage of total small
...
THE CURRENT STATE OF SMALL
BUSINESS FINANCING
Amount of Financing
The average small
business loan is $83,000.
$5,000 or le...
FREQUENCY OF FINANCING
Three or
more times
39%
Twice
29%
Once
32% A majority (66%) of small business owners report their
m...
PRIMARY SOURCES
OF FINANCING:
Small business owners use a combination of personal and external
sources of funding to fuel ...
THE LOAN APPLICATION
PROCESS
Average time waiting for a decision on
a financing application:
Basis for Credit Application
S...
34%
of small businesses indicate that
they were able to get all of the
funding they needed the last time
they went to a fin...
IMPACT ON THE SMALLEST
OF SMALL BUSINESSES
Small businesses with 1-10 employees face unique challenges in navigating the l...
WHAT DO SMALL BUSINESS
OWNERS WANT?
Top priorities for
small business
owners when starting
the loan process:
85%
83%
69%
6...
86%
84%
80%
84%
11+ employees
Most recent loan amount was over $25K
Use QuickBooks
Need/prefer an advisor to walk them thr...
THREE KEY TAKEAWAYS
1.
2.
3.
The traditional small business financing system is leading to lost opportunities for
small bus...
$ $ $ $
$
QuickBooks Financing is a marketplace of small business finance products covering the full spectrum of
credit off...
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Financing Small Business Success: The Rise of Online Lending

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As part of its ongoing efforts to solve persistent pain points for small business, Intuit released a new research report, “Financing Small Business Success” which shows how online lenders are reshaping the small business financing market.

The research was conducted by Ebiquity and based on 500 interviews held July 20-27. Research was completed online among owners and managers of U.S. small businesses that have attempted, either successfully or unsuccessfully, to secure funding for their company through business financing channels.

The forecast was prepared by Emergent Research, based on existing assessments of the small business credit market outlined in the Harvard Business School paper, “The State of Small Business Lending: Credit Access During the Recovery and How Technology May Change the Game.” The forecast assumes moderate U.S. economic growth averaging 2-3 percent over the forecast timeframe.

Published in: Business

Financing Small Business Success: The Rise of Online Lending

  1. 1. FINANCING SMALL BUSINESS SUCCESS: THE RISE OF ONLINE LENDINGPART OF INTUIT’S DISPATCHES FROM THE NEW ECONOMY SERIES
  2. 2. Small businesses are the lifeblood of the American economy, and financing is the lifeblood of a small business. Small businesses rely on financing to power their growth, to invest in new employees, new equipment, and new opportunities. THE DECLINE OF TRADITIONAL LENDING The traditional small business financing system is broken. [Sources: Harvard Business School , National Federation of Independent Businesses]. Time-consuming application process: 33HOURS Small businesses spend an average of 33 hours on paper work for a bank loan. 34% Low approval rates: Only a third get all the funding they need. ! 20% Decline in loans being funded: Small business loans are down since 2008 ! 1
  3. 3. The explanation for the sharp decline in traditional small business loans is simple. Small businesses are more vulnerable to swings in the market than larger companies. Cash flow is tighter, margins are smaller, and a single missed opportunity can make the difference between prosperity and shutting down. Because of this small businesses represent a less attractive opportunity for the major banks. It’s riskier to lend to a small business than it is to lend to a big, established company. It can be tough to accurately assess the credit-worthiness of a small business. And it’s simply not as a lucrative. In response to this broken system, a wave of change sweeping over the small business lending space. A new breed of online lenders is emerging with the promise of a streamlined application process, quicker decision making, and higher approval rates. This report is designed to provide a snapshot into the mindset of a small businesses facing the loan application process. It examines the key pain points with the traditional application process, and looks at how online lending platforms can fill the void. The Benefits of Online Lending: — Easier, faster application process — More accurate assessment of credit strength — Higher approval rates 2
  4. 4. 56% average annual growth rate for small business online lending over the next five years. 10.5% percentage of total small business loans that will come from online lenders – up from a mere 1.3% today. A NEW ERA IN SMALL BUSINESS FINANCING: The growth of online lending: Forecast prepared by Emergent Research on behalf of Intuit in September, 2015. 2015 2016 2017 2018 2019 2020 Online lending $83b $60b $42b $27b $17b $9b 3
  5. 5. THE CURRENT STATE OF SMALL BUSINESS FINANCING Amount of Financing The average small business loan is $83,000. $5,000 or less $5,001 - $25,000 $25,001 - $150,000 Over $150,000 17% 35% 34% 14% Uses of Financing The vast majority of small businesses use funding to grow their business by investing in new infrastructure and taking advantage of new opportunities: Purchase new equipment Working capital New production/service space Consolidate debt Hire employees Cover payroll Other 35% 29% 13% 7% 4% 3% 9% Data from survey conducted by Ebiquity on behalf of Intuit in July, 2015. 4
  6. 6. FREQUENCY OF FINANCING Three or more times 39% Twice 29% Once 32% A majority (66%) of small business owners report their most recent application for financing occurred within the past two years: 32% 34% 34% Within the past year 1-2 years ago 3 or more years ago A majority (68%) of small businesses apply for financing multiple times over the life of their business: 5
  7. 7. PRIMARY SOURCES OF FINANCING: Small business owners use a combination of personal and external sources of funding to fuel their businesses. External Sources: Business credit card 73% Leasing 22% Bank loan 52% 7% Peer-to-peer loan Government loan 15% Personal Sources Personal credit card 57% Loan from friends/family 27% Home equity loan 19% Personal savings 55% 6
  8. 8. THE LOAN APPLICATION PROCESS Average time waiting for a decision on a financing application: Basis for Credit Application Small businesses also use both their personal and business credit as a basis for applying for financing: Business credit history Personal credit history A combination of business and personal credit history 20% 22% 57% Small business owners dedicate valuable hours to the process each time they apply for business financing. On average, small business owners spend 33 hours searching, researching and applying each time they need a loan. After the application process is over, small business owners report waiting for 1.5 weeks on average for a decision on their financing application. 45% 33% 18% 4% Less than 1 week 1 week to less than 2 weeks 2 weeks to less than 1 month 1 month or longer 7
  9. 9. 34% of small businesses indicate that they were able to get all of the funding they needed the last time they went to a financial institution. What Happens When a Small Business is Turned Down for a Loan? Top three impacts of not getting approved for a loan (multiple choices available): 27% 21% 13% 11% 11% 10% 7% 5% 3% 2% 1% Not enough business history Too much outstanding debt Low FICO score Not enough cash flow Unable to provide information requested Less assets than liabilities Supplied the wrong documents Recently filed for bankruptcy Don’t know Other Top reasons for being denied? APPROVAL RATES 35% Lost employees 31% Couldn’t pay the bills Missed opportunity 72% 8
  10. 10. IMPACT ON THE SMALLEST OF SMALL BUSINESSES Small businesses with 1-10 employees face unique challenges in navigating the loan process. They are: On average, companies with 1-10 employees applied for $47,300 in financing, compared to an average of $130,800 among companies with 11+ employees. Used their personal credit history 83% More likely to rely on their personal credit history: Twice as likely to say that the loan application process does NOT work well: Less likely to apply for funding: 58% have applied for financing more than once over the life of their business, of companies with 11+ employees have applied for financing more than once. 83% ! ! Three times as likely to have been turned down for a loan! 9
  11. 11. WHAT DO SMALL BUSINESS OWNERS WANT? Top priorities for small business owners when starting the loan process: 85% 83% 69% 63% 53% Approval Rates and Fees Lender is a trusted and known partner Ease Speed 48% A minority are confident in their knowledge of financing options. 54% Only a slim majority are confident in their understanding of the loan process. 10
  12. 12. 86% 84% 80% 84% 11+ employees Most recent loan amount was over $25K Use QuickBooks Need/prefer an advisor to walk them through the process Companies who are most open to using this option: THE APPEAL OF ONLINE LENDING of small businesses who currently use a financial management system, such as QuickBooks Online, say they would use a loan application system that made the process easier by pulling data directly from their system. 77% 61% of small business owners say that if the application process was easier they would apply for loans more frequently. 73% companies just starting out or in a growth stage are even more likely to say they’d apply for additional funding if the loan process was easier. 11
  13. 13. THREE KEY TAKEAWAYS 1. 2. 3. The traditional small business financing system is leading to lost opportunities for small businesses. Nearly three quarters (72%) of small businesses say that being turned down for a loan prevents them from taking advantage of a new business opportunity, hiring additional staff, or investing in future growth. The smallest of small businesses are hardest hit by the current system. They are twice as likely to say that the loan application process does not work well, and three times as likely to have been turned down for a loan. Small business owners want a simpler option for accessing the funding they need. 77% say they would use a loan application system that made the process easier by pulling data directly from their accounting system.
  14. 14. $ $ $ $ $ QuickBooks Financing is a marketplace of small business finance products covering the full spectrum of credit offerings including, short and long term loans, lines of credit, peer-to-peer invoice financing and Small Business Administration loans. QuickBooks Financing makes it is easy for small businesses to access tailor-made solutions without having to complete paperwork or negotiate with lenders. With the click of a button, small businesses can use the power of their own QuickBooks data to get the financing they need to take their business to the next level. QUICKBOOKS FINANCING

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