Small businesses make up 99.9 percent of all businesses in America. I quote this statistic often, and for good reason. There’s nothing small about the impact these types of businesses have on our economy. Yet they routinely report difficulty in accessing the capital they need to start, maintain and expand their operations. Only half of small firms receive the full amount of funding they request. It seems counterproductive to limit financial services to those who are the driving force of the economy, but luckily, technological transformations are changing this.
A new report on small business lending in the U.S., released this week, shows an upsurge in lending from online small business lenders, and the economic impact of this lending activity is widespread and significant.
The study was conducted by NDP Analytics and is based on data collected from 2015 to 2017 from five of the nation’s largest small business lending platforms, including OnDeck, Kabbage and Lendio. Key highlights from the report show that these online lenders:
- Facilitated $10 billion in online loans.
- Generated $37.7 billion in gross output.
- Created 358,911 jobs and $12.6 billion in wages in U.S. communities.
- Are filling a critical financing gap for small business owners across industries.
The report tells an interesting story about the role online lending plays in the country’s economic well being. I’m thrilled to see the impact these financing options are having on small businesses and beyond, but it’s still a small piece of the pie. A recent Federal Reserve report shows that 48 percent of loan applications still go to large banks and 70 percent of the micro firms that applied failed to get the amount they requested. There’s room to broaden the impact.
Money is power and small businesses need more of both
For the mom and pop repair shops, main street cafes, small manufacturing firms or independent contractors in our communities, business ownership is more than a lofty ideal. It’s a way of life. These folks know firsthand how grueling it is to survive in business. They also know how crucial it is to have access to small business loans—nearly three-quarters of small business owners seek loans to start, operate or expand.
An integral part of the fabric of our communities, small businesses provide many of our everyday goods and services and employ over half of the private-sector workers in this country. For every $1 in lending to small businesses, they create an average of $3.79 in gross output in their communities. The vitality of these businesses relies on access to capital. They need financing to get started, purchase inventory, cover operational expenses and expand, yet they are underserved by the very banks that retain their deposits. An undeniably challenging financing gap still exists for small businesses in America, and only through democratizing access to capital for these business owners can we close the gap.
Democratize credit for small businesses and everyone wins