Small business loan balances vary by type, with interest rates either fixed or variable. The average balance for fixed-rate small business term loans is notably lower than that for variable-rate loans. Interestingly, the majority of term loans fall into the fixed-rate category.
The U.S. Small Business Administration (SBA) backs loans for small businesses through banks, using a definition differing from the Federal Reserve's. Even businesses surpassing $5 million in revenue are deemed small by the SBA. SBA-guaranteed loan averages surpass those for Federal Reserve-defined small businesses. In 2020, the average SBA 7(a) loan amounted to $567,599, with the SBA guaranteeing 73.5%, totaling $417,567. While SBA 7(a) loans peak at $5 million, the SBA's maximum guarantee is $3.75 million, constituting 75% of the maximum loan amount (for loans exceeding $150,000).
Small business owners, beyond traditional banks, now explore alternative lenders for loans. These online-based lenders provide more flexibility and, in some cases, quicker underwriting than traditional counterparts. The table below highlights key alternative lenders and the range of small business loan amounts they offer, providing business owners with diverse options to suit their financing needs. Some of these lenders include Bluevine, Credibly, and OnDeck.
Small business loan amounts from major commercial banks exhibit considerable variation, ranging from as low as $5,000 to a substantial $5 million or more. Despite the wide array of offerings, obtaining approval for a small business loan from these institutions poses significant challenges for smaller enterprises. Large commercial banks typically impose stringent lending criteria, demanding a robust credit history, substantial collateral, a down payment, and a proven profitability track record. Meeting these criteria becomes a formidable task, particularly for startups or industries perceived as higher risk.
Moreover, many commercial banks primarily cater to medium and enterprise-level companies, prompting numerous small businesses to seek alternative or SBA-approved lenders for more adaptable lending solutions.
On the local front, small business loan amounts at community banks and credit unions may be more modest compared to their commercial counterparts. These smaller financial institutions often uphold eligibility requirements akin to commercial banks, necessitating a strong credit history, a well-structured business plan, and potential collateral for loan security.
Despite the potentially smaller loan amounts, the personalized service and community-oriented focus of local banks and credit unions can render them invaluable for small businesses in need of financing. Additionally, traditional lenders such as banks and credit unions typically offer lower interest rates compared to online lenders, enhancing their appeal for businesses seeking both financial support and a supportive local touch.
Whether opting for community banks with a local touch or large commercial banks with substantial offerings, businesses must strategically align their financing choices with their immediate needs and long-term sustainability. In this financial labyrinth, informed decision-making ensures businesses secure the right loan
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