Financing Small Business Success: The Rise of Online Lending
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.
Financing Small Business Success: The Rise of Online Lending
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 businesses rely on ﬁnancing to power their growth, to invest in new employees,
new equipment, and new opportunities.
THE DECLINE OF
The traditional small business
ﬁnancing system is broken.
[Sources: Harvard Business School , National Federation of Independent Businesses].
Time-consuming application process:
Small businesses spend an average of
33 hours on paper work for a bank loan.
Low approval rates:
Only a third get all the funding
Decline in loans being funded:
Small business loans are down
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
average annual growth rate for
small business online lending
over the next ﬁve years.
percentage of total small
business loans that will come
from online lenders – up from
a mere 1.3% today.
A NEW ERA IN SMALL
The growth of online lending:
Forecast prepared by Emergent Research on behalf of Intuit in September, 2015.
2015 2016 2017 2018 2019 2020
THE CURRENT STATE OF SMALL
Amount of Financing
The average small
business loan is $83,000.
$5,000 or less
$5,001 - $25,000
$25,001 - $150,000
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
New production/service space
Data from survey conducted by Ebiquity on behalf of Intuit in July, 2015.
FREQUENCY OF FINANCING
32% A majority (66%) of small business owners report their
most recent application for ﬁnancing occurred within
the past two years:
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
Small business owners use a combination of personal and external
sources of funding to fuel their businesses.
Business credit card
Peer-to-peer loan Government loan
Personal credit card
THE LOAN APPLICATION
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
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.
Less than 1 week
1 week to less than 2 weeks
2 weeks to less than 1 month
1 month or longer
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):
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
Top reasons for being denied?
Couldn’t pay the bills
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
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:
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.
Three times as likely to have been
turned down for a loan!
WHAT DO SMALL BUSINESS
Top priorities for
owners when starting
the loan process:
Rates and Fees
Lender is a trusted and known partner
A minority are conﬁdent in
their knowledge of ﬁnancing
Only a slim majority are
conﬁdent in their understanding
of the loan process.
Most recent loan amount was over $25K
Need/prefer an advisor to walk them through the process
Companies who are most open
to using this option:
THE APPEAL OF
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.
of small business owners say that if the
application process was easier they
would apply for loans more frequently.
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.
THREE KEY TAKEAWAYS
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.
$ $ $ $
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.