Feb 18
Small Business Financing Snapshot
in Small Business Financing, Working for Yourself
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Small businesses are predominantly funded by commercial banks. Small business financing is generally provided by those banks located in the same community or in communities nearby. As of June 2006, small businesses owed an estimated $634 billion to commercial banks - yes, $634 billion.

You may find it surprising but banks with at least $10 billion in assets are key players in funding small businesses as evidenced by the table below. In fact, these banks accounted for the following:

  • 64% of all business loans

  • 45% of small business loans (loans under $1 million), up from

  • 75% of the total number of loans (up from 70% in 2005) and 53 percent of the total amount outstanding.

Business Loans by Size of U.S. Depository Institutions

Item < $500 mm $500 mm - $1 bln $1 bln to $10 bln $10 bln to $50 bln > $50 bln
# of Institutions 6,391 591 473 74 34
Microloans (<$100k)          
% Dollar Amount
 25.63% 7.07% 14.55% 13.67% 38.98%
% Number
 7.23% 9.47% 12.44% 17.74% 53.11%
Small Business Loans ($100k-$1mm)          
% Dollar Amount
 25.00% 10.17% 22.46% 11.99% 30.29%
% Number
 33.00% 8.79% 20.37% 10.36% 27.48%

Source: Federal Reserve Board, Survey of Small Business Finances.

As a small business owner or operator, you should be aware of the interest rates and key terms for small business loans. The Federal Reserve provides several statistical studies on the topic of small business lending.

  • The average interest rate for loans under $10 million ranges from 7.2% to 8.7%.

  • The percentage of loans secured by collateral varies widely with loan size from 83% for loans under $100k to 47% for loans between $1 million to $9 million.

Summary Lending Terms

Loan Amount Wtd. Avg. Interest Rate $Value of Loans Risk Rating % Secured by Collateral % Prepay Penalty % Prime Based
$1k - $99k 8.67% 2,781 3.3 83.2% 9.7% 70.3
$100k - $999k 8.15% 9,789 3.2 72.7% 13.1% 65.7%
$1mm - $10mm 7.20% 18,767 3.2 46.7% 27.0% 32.9%
>$10mm 6.32% 41,803 2.6 21.3% 37.3% 9.5%

Source: Federal Reserve Board, Survey of Terms of Business Lending.

 

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