Average Loan Amounts Provided to Small Businesses
Ezra Cabrera | February 10, 2022
- There are many types of loans available to small businesses offered by various lenders, which makes calculating the average small business loan amount difficult. Instead, business owners may turn to the average loan amounts by small businesses depending on loan types and across specific lenders or lending institutions.
- SBA and medium-term loans provide the largest loan amounts. Short-term loans and business lines of credit have lower average loan amounts.
- Other funding options, such as invoice and equipment financing, vary depending on the value of the invoice or the equipment.
Business owners must carefully choose the right loan type for their business. They must also select the best one based on their situation, goals, and qualifications.
However, how can an entrepreneur choose the right one from among many different types of small business loans?
One important factor to consider is the loan amount potential lenders offer.
What is the Average Loan Amount?
According to the Federal Reserve, the average small business loan amount across all banks in the United States is $633,000.
This may be useful information for business owners, as it can give them an idea regarding how much funding they are likely to get. However, this number is only for bank loans. Other types of loans, such as SBA loans, alternative loans, etc., may extend more (or less) money.
Since there are many types of loans available to small businesses offered by various lenders, calculating the average small business loan amount across the board is difficult. Instead, a better way of doing so is by calculating the average loan amounts based on loan types and lending institutions.
Here are the average loan amounts depending on specific loan types:
What are the Average Loan Amounts Depending on Loan Type?
1. SBA Loans: $107,000
2. Medium Term Loans: $110,000
3. Short-Term Loans: $20,000
4. Business Line of Credit: $22,000
5. Invoice Financing: Up to 85% of the total invoice value
6. Equipment Financing: 100% of the equipment
There are many different types of loans currently offered. Some are better suited for larger business investments, while some are better for funding short-term needs. This is why it’s important to categorize average small business loan amount averages based on the loan type.
Here’s is a comprehensive list of average small business loan amounts depending on loan type:
1. SBA Loans
The average SBA loan for small businesses is $107,000.
SBA stands for “Small Business Administration.” As a federal agency, the SBA is not a lender but provides partial guarantees for SBA loans. This eliminates some of the risks for the lender providing the business funding.
This means that the SBA works with a network of approved financial institutions. Funding is then distributed to small businesses more frequently and with better terms since the SBA partially guarantees these financial institutions’ loans to small businesses.
The SBA will back up a part of the loan that a small business may receive. If, by any chance, the borrower is unable to pay back the SBA loan, then the lender can still be assured that the SBA will still cover a portion of the loan.
Business owners should also be aware that since SBA loans provide larger loan amounts in a lump sum, they are best suited for financing major business endeavors.
The SBA offers different loan programs. One of the most popular is the 7(a) loan program, which provides low-cost financing to small businesses that otherwise won’t qualify for financing elsewhere. SBA 7(a) loans may be used for a wide range of purposes, such as payroll expenses, equipment, inventory purchases, or additional working capital.
Another popular SBA program is the microloan. This program provides loans up to $50,000 to aid small businesses and some non-profit childcare centers to operate and expand.
Since there are many different SBA programs, the loan amounts also widely vary.
2. Medium-Term Loans
The average medium-term loan amount is $110,000.
Medium-term loans are loans that have a repayment period that ranges from two to five years. Typically, medium-term loans provide funding of up to $500,000, and the repayment schedule may be monthly or bimonthly. They also usually come with mid-market interest rates, and borrowers may need to wait anywhere from two to three weeks to get funding.
Another way to put it is that medium-term loans are structured similarly to bank loans. Like bank loans, the loan amount for medium-term loans is usually large and is provided as a lump sum. However, these are not offered by banks but instead are provided by alternative lenders.
3. Short-Term Loans
The average short-term loan amount is $20,000.
A short-term loan is usually obtained to support a temporary need, such as having more working capital or consolidating some debt incurred by the business. They are called “short-term loans” because they often require quick repayment. Everything else about these types of loans is like medium-term loans, however. Therefore, they are like medium-term loans but shorter-term lengths and smaller loan amounts. The benefit that short-term loans provide over medium-term and longer-term ones is that they are more accessible.
Though short-term loans have shorter repayment periods compared to traditional loans, they remain extremely attractive to newer businesses that still aren’t eligible for a business line of credit typically offered by a bank. Although the loan amounts provided by short-term loans are typically lower than others, short-term loans are an excellent solution for temporary financial trouble.
4. Business Lines of Credit
The average amount for a business line of credit is $22,000.
A business line of credit is a revolving loan that provides business owners access to fixed and flexible capital. The money can then be used to meet short-term business needs, such as unforeseen expenses and other day-to-day concerns.
Usually, businesses opt for a line of credit to finance short-term working capital requirements, including purchasing inventory, financing marketing campaigns, repairing essential equipment, or bridging seasonal gaps in the cash flow.
Depending on the lender and your creditworthiness, the amount offered in a business line of credit can vary greatly. For example, banks usually are seen as the more traditional lenders that offer lines of credit to businesses. They also tend to offer larger amounts. However, there are also alternative or non-bank lenders. These include online lenders that have less stringent requirements but offer smaller lines of credit. Though not an industry standard, these alternative lenders are often referred to as “short-term lines of credit.”
5. Invoice Financing
The usual amount for invoice financing is 85% of the invoice value.
Invoice financing is where a third-party company collects payments on another company’s behalf. It’s best for businesses that process a lot of invoices but want to focus on running day-to-day operations over going after unpaid invoices. Businesses may also turn to invoice financing to have access to additional cash on hand without turning to loans.
This means that an invoice finance lender helps business owners leverage their unpaid invoices while giving them an instant cash injection into the business. The maximum that lenders release straightaway is usually up to 90% of a business’s invoices. However, the average lump sum that invoice companies in the US provide is only up to 85% of the invoice value.
However, business owners should note that lenders usually charge additional fees after the full invoice payment has been collected and released. Business owners need to choose the best one depending on the situation and the level of control that an invoice financing company may require when they collect unpaid invoices.
6. Equipment Financing
The usual amount for equipment financing is 100% of the equipment value.
Equipment financing is a loan that should only be used to purchase or lease business-related equipment. For example, a restaurant may need a new oven, or a shipping company may need a new vehicle. Business owners who take out an equipment loan need to make periodic payments over a fixed term, including both the interest and principal.
Most equipment financiers offer the full value of the equipment when providing an equipment loan. Similar to invoice financing, the amounts offered by equipment financing vary greatly. In this case, it depends on the value of the specific equipment to be purchased.
What are the Average Small Business Loan Amounts Based on Lender?
1. Large National Banks: $564,000
2. Small Banks: $184,000
3. Alternative Lenders: $80,000
The average business loan amount can also greatly vary depending on the lending institution that provides the loan. For example, large banks usually offer different loan amounts from online lenders. This is because each one fulfills a different small business need. Each one also has a different application process.
Here are the average small business loan amounts depending on the lending institution, based on data from the Federal Reserve.
1. Large National Banks
The average small business loan amount provided by large, national banks is $564,000.
This is quite a considerable loan amount for a small business. Many small businesses may even face difficulty meeting the qualification criteria for these types of loans. For example, large banks usually require small businesses to have high credit scores, strong financials, and a certain number of years in operation.
Also, many traditional banks usually only consider applications for loan amounts much larger than what small business owners typically need. Banks generate more profit when they provide loans with larger amounts. This means that though the average small business loan amount is $564,000, not many businesses qualify for these types of loans.
2. Small Banks
The average small business loan amount provided by smaller banks is $184,000.
Whether they are on the national or regional level, smaller banks generally offer smaller loan amounts than large national banks.
Though smaller banks offer much lower loan amounts, more businesses can qualify for these types of loans. Their processes may still be quite stringent, but most small business owners will successfully apply for loans offered by smaller banks.
3. Alternative Lenders
The average small business loan amount provided by alternative lenders is $80,000.
On the other hand, alternative lenders often offer a more comprehensive range of loan products. They also tend to offer smaller loan amounts than loans offered by banks or the SBA.
This doesn’t mean, though, that it’s impossible to qualify for larger loans from alternative lenders. Some offer maximum loan amounts of up to $1 million. These lenders also tend to have less stringent qualification criteria than banks and the SBA.
Business owners need to know the amount they intend to borrow, but they must also know the average loan amounts depending on different loan types and lenders. This will allow business owners to choose the one that best fits their situation and give them more chances of being granted the loan.
Since there are many types of loans available to small businesses offered by various lenders, calculating the average small business loan amount across the board is difficult. However, there is enough data from the Federal Reserve so that the average loan amounts can be calculated depending on the loan type, such as SBA, medium-term, and short-term loans. Business owners may also opt for other types of funding, such as lines of credit, invoice financing, and equipment financing. Different institutions such as large national banks, small banks, and alternative lenders also provide different loan amounts and have different application processes.