Who's Really Getting Small Business Loans in the US? A Deep Dive Into 2023 Lending Data

The small business lending landscape in the US is undergoing a dramatic shift. While traditional bank loans remain the primary financing vehicle for entrepreneurs, new patterns in approval rates, demographic disparities and state-level trends are reshaping how businesses access capital. Understanding these dynamics is crucial for any business owner evaluating their financing options.

The Current State: Small Businesses Are Struggling for Capital

The financial health of small businesses tells a sobering story. According to the Federal Reserve Banks’ Small Business Credit Survey, 59% of small businesses find themselves in fair or poor financial condition—a sharp increase from just two years prior. Even more alarming, 85% of small businesses experienced financial difficulties during 2021 alone, representing a 20-percentage-point surge since 2019.

This deterioration in financial stability directly impacts access to capital. Only 42% of small businesses have their financing needs adequately met, creating a substantial gap between demand and available resources. The reality is that most firms rely heavily on either large or small banks for financing, primarily due to limited awareness of alternative funding channels like angel investors or fintech platforms.

The Decline of Traditional Bank Borrowing

Interestingly, even as small businesses struggle financially, fewer of them are applying for traditional loans. The percentage of small businesses pursuing conventional financing has contracted significantly:

• 2019: 43% applied for loans
• 2020: 37% applied for loans
• 2021: 34% applied for loans

This downward trend suggests that capital-seeking businesses are increasingly exploring alternative financing vehicles—crowdfunding, peer-to-peer lending and fintech solutions—rather than navigating the complexities of traditional bank applications.

For those who do pursue traditional routes, the approval landscape has become increasingly challenging. In 2021, only 31% of applicants received their full requested amount, compared to 51% in 2019. This represents a dramatic 20-percentage-point decline in full funding success rates.

The silver lining: small business debt levels are improving. Outstanding debt decreased from 80% in 2020 to 74% in 2021, with most firms carrying $100,000 or less in total debt obligations.

How Businesses Deploy Loan Capital

When small businesses do secure financing, the allocation of funds reveals clear priorities. A Forbes Advisor survey found that business owners targeted their loan proceeds across multiple purposes:

Primary Uses:

• Business expansion: 42.4%
• Equipment purchases: 29.4%
• Marketing and advertising: 28.6%
• Business franchising: 27.6%
• Real estate/remodeling: 26.8%
• Business acquisitions: 25.4%

Secondary Uses:

• Inventory purchases: 24.2%
• Operating cash flow: 22.4%
• Payroll expenses: 21.8%
• Debt consolidation: 18.6%

These allocations demonstrate that small business owners prioritize growth and expansion over mere survival, though a significant portion still relies on loans to cover operational necessities.

The Speed of Capital Deployment

Once funds are secured, deployment timelines vary considerably. The Forbes Advisor data reveals:

• 21% of businesses exhaust loan funds within 5-6 months
• 19% utilize funds within 3-4 months
• 16% spend funds within 1-2 months
• Only 5% deploy funds in under one month
• 13% take 7-8 months
• 4% require over one year

The majority of small businesses demonstrate relatively quick capital utilization, with over half deploying their funds within six months of receipt.

The Average Loan Size Reality

According to Federal Reserve data, the average small business loan in the US stands at approximately $663,000. However, loan size varies dramatically based on borrower profile and industry classification. This variation reflects the diverse capital needs across different business types and growth stages.

US Small Business Lending: Demographic Disparities in SBA 7(a) Loans

The SBA’s flagship 7(a) loan program, which offers up to $5 million in financing for working capital, inventory, real estate and equipment, reveals stark demographic inequalities in approval and funding amounts.

Distribution by Race

The racial composition of approved 7(a) loan recipients in the US demonstrates significant imbalance:

• White business owners: 42.4% of total loan dollars (~$10.9 million)
• Unspecified race: 25.2% (~$6.5 million)
• Asian business owners: 20.6% (~$5.3 million)
• Hispanic business owners: 7.2%
• Black or African American owners: 3.9%
• American Indian or Alaska Native owners: 0.7%

This distribution starkly illustrates systemic inequities within the US lending infrastructure, with white and Asian-owned businesses capturing over 63% of total 7(a) loan funding.

Distribution by Gender

Gender represents another dimension of lending disparity:

• Male-owned businesses: 71.6% of approval amounts (~$18.4 million)
• Female-owned businesses (>50% female ownership): 14.8% (~$3.8 million)
• Businesses with minority female ownership (<50% female): 13.6% (~$3.5 million)

This nearly 5-to-1 advantage for male-owned businesses over female-led enterprises reflects persistent gender-based lending discrimination within the US market.

Distribution by Industry

In 2022, 7(a) loan capital concentrated in specific sectors:

• Accommodation and food services: 19.20%
• Retail trade: 14%
• Healthcare and social assistance: 10.30%
• Manufacturing, construction and professional services: varying percentages
• Public administration, utilities: 0% and 0.10% respectively
• Management of companies: 0.20% (though commanding the highest average loan size at ~$1.4 million)

These distributions reflect both capital demand and perceived lending risk across different industries.

Approval Trends by US State

State-level analysis of 7(a) loans from 2018-2022 reveals significant geographic variation:

Highest Approval States (5-year average):

• Georgia: $840,145
• Texas: ranked second
• California: ranked third
• Louisiana: ranked fourth
• Alaska: ranked fifth

Lowest Approval States:

• Hawaii: $213,505
• Maine, Massachusetts, Ohio and New Hampshire: bottom tier

Notably, four of the ten states with highest average approvals are among the US’s most populous states, suggesting that larger population centers may facilitate higher loan amounts.

The 2022 Correction: A Sharp Drop in Average Loan Size

A critical trend emerged in 2022: a significant contraction in average 7(a) loan approvals. The nationwide average plummeted from $704,581 in 2021 to $538,903 in 2022—a decline exceeding $165,000 per loan. This substantial year-over-year drop signals shifting lending conditions and potentially tighter underwriting standards in the US small business lending market.

Alternative Lending Channels Gaining Ground

Despite the traditional bank dominance, alternative lenders are capturing increasing market share:

• Online lenders: 23% of small business loan applicants in 2021 (up from 20% in 2020)
• Finance companies: 17% of applicants
• Credit unions: 8% of applicants
• Community development financial institutions (CDFIs): 3% of applicants

This gradual shift toward alternative channels suggests that small businesses in the US are diversifying their financing strategies as traditional pathways become more restrictive.

Key Takeaways for US Small Business Owners

The 2023 small business lending landscape presents both challenges and opportunities. While capital remains available through traditional and alternative channels, approval rates have tightened and demographic disparities persist. Small business owners must navigate these dynamics by:

1. Understanding that traditional bank loans remain the primary vehicle but represent declining usage
2. Recognizing that approval rates have deteriorated significantly since 2019
3. Being aware of demographic and geographic inequalities in approval patterns
4. Considering alternative financing sources beyond traditional banks
5. Planning capital deployment efficiently, as most successful borrowers deploy funds within six months
6. Monitoring state-level and industry-specific trends relevant to their business profile

The US small business lending market continues to evolve, with 2022 marking a potential inflection point in loan sizing and availability. Business owners should stay informed on these trends when making capital decisions.