Jun 01, 2018

New Study Shows Online Lending Is a Godsend for Small Business

Small businesses serve a vital role in the American economy, accounting for over 99% of all U.S. firms and employing more than half of private-sector workers. Many realize, however, that in a competitive business environment, access to capital can be a crucial differentiator in success. In 2017, almost 75% of of small business owners sought small loans to start, operate, or expand their business.

In 2017, 55% of loan applicants sought sums of $100,000 or less, according to the Small Business Credit Survey released by the Federal Reserve. Most businesses seek smaller loans because most businesses are pretty small to begin with. In fact, 75% of small businesses have less than 10 employees.

Such high demand for capital has helped to bolster an already growing community of online lenders seeking to offer smaller sized loans to businesses. According to a study released today by NDP Analytics, online lenders loaned nearly $10 billion to 180,000 small businesses from 2015-2017. The average sum of these loans was calculated to be around $55,498.

These loans represent opportunity for small businesses who may struggle to find capital. According to the report, 25% of businesses receiving loans reported sales below $100,000 and 34% were businesses in lower-income communities. These numbers help cement online lenders as champions of the little guy.

As traditional lenders have had to tighten their purse towards riskier and smaller loans, online lenders seem to be fighting against the grain to help make a difference for small business owners who just need a little money to make their next – or first – step. The best news of all, though, is that these loans are actually bringing huge dividends to the businesses they are meant to help.

Loans given to small businesses generated $23 billion in sales and $37.7 billion in gross output from 2015-2017. They also helped create 358,911 jobs and $12.6 billion in wages. In other words, the money small businesses are receiving is a huge boon to the economy. In New York, in fact, for every dollar loaned, sales increased anywhere between $1.06 and $3.08.

The positive impacts of a vibrant lending ecosystem are more than just paying off in sales, they’re paying off in a number of industries as well. Small businesses offer a diverse cast of services. Some give online coaching to help people build six-pack abs while others design fancy bow ties. Because of the inherent diversity in small business, industries like agriculture, retail, and education have all reported increases in output, jobs, and earnings.

These increases represent a macroeconomic trend towards progress with small businesses as the backbone. According to the study, “through increased access to capital, small businesses across America are able to grow. As these businesses succeed, so do those around them. As such, American communities across the U.S. have realized positive economic impact from online lending.”

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About the author

Andrew Mosteller
Andrew Mosteller is a freelance writer and regular contributor to Lendio News. His upbringing in an entrepreneurial family nurtured a passion for small business at a young age. Andrew's father, an equity fund manager, taught him the ins and outs of investment financing. Now, Andrew spends his time writing copy for business owners, helping them expand and advertise their unique brands. He's also studying Strategic Communications at the University of Utah. When Andrew's fingers aren't glued to the keyboard, he spends his time reading, podcasting, composing music, and bombing down the ski slopes.

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