Small Business
Who Says Yes: How Small Businesses Borrow Now, and Where They Get Turned Down
The Federal Reserve's latest survey shows the lender you choose shapes your odds almost as much as your business does. And nearly half of small firms have a funding gap they quietly cover themselves.
Every year the twelve Federal Reserve Banks ask thousands of small employers how they finance their businesses, whom they ask for money, and what happens when they do. The latest report, released in March and drawn from more than 6,500 responses collected in the fall of 2025, is the most detailed picture available of small business credit in America.
Its clearest lesson is that where you apply matters almost as much as what you bring.
By the numbers
Who asks for money
Sixty percent of employer firms applied for some form of financing in the previous year, counting everything from credit cards to equipment leases. A narrower 38 percent applied for a loan, a line of credit or a merchant cash advance. And a growing share needs nothing at all: 31 percent of firms carry no debt, up from 21 percent in 2020.
The everyday tool is the credit card. Sixty-two percent of firms use one regularly, more than any loan product.
The approval map
Overall, 52 percent of applicants for loans, lines of credit and cash advances were fully approved, 19 percent were partially approved and 29 percent were denied. That is steady with the year before and well below 2019, when 62 percent were fully approved.
The spread by lender is wide. Full approval rates were:
- Small banks: 57 percent
- Finance companies: 50 percent
- Credit unions: 44 percent
- Large banks: 43 percent
- Online lenders: 38 percent
- Community development financial institutions: 27 percent
Those gaps partly reflect who applies where. Firms with higher credit risk were far more likely to try online lenders, and community development lenders exist to serve borrowers others turn away. Still, the most common first stop, a large bank, approved fewer than half its applicants in full. The credit union and community lender figures rest on small samples, so treat them as approximate.
The SBA surprise
Government-backed loans are often described as the small business owner's best option. In this survey they had the worst outcomes of any product: only 32 percent of SBA loan applicants were fully approved, and 40 percent were denied. Auto and equipment loans, secured by what they buy, were fully approved 71 percent of the time.
Size and age decide a lot
Revenue was the strongest predictor. Firms with under $100,000 in annual revenue were fully approved 37 percent of the time, and firms over $10 million, 76 percent. Young firms, five years old or less, were approved 48 percent of the time, against 63 percent for firms more than twenty years old.
The online lending trade-off
Online lenders drew 29 percent of applicants in 2025. That sounds like a surge, and it is, but only against 2020, when the share fell to 17 percent. In 2019 it was 30 percent. The trade-off shows up afterward: 60 percent of online-lender borrowers said their actual costs were higher than they expected, compared with 37 percent at small banks and 32 percent at large banks.
Among firms facing financial challenges, 54 percent used the owner's personal funds to cope, and among one-person businesses it was 64 percent. Of firms with debt, 59 percent backed it with a personal guarantee. For most small businesses, business credit is personal credit.
The gap no one sees
Only 51 percent of firms had their funding needs fully met. Another 34 percent applied and came up short, and 15 percent needed financing but never applied. Together, by our calculation, 49 percent of small employers have a funding gap. Among applicants who were not fully approved, the most common reasons given were strict lender requirements, existing debt, low credit scores and too little collateral.
The pressure behind those needs is cost. Seventy-three percent of firms named rising costs of goods, services or wages as a challenge, and 42 percent named higher costs from tariffs, a question new to the survey this year. Expectations dimmed with it: the survey's measures of expected revenue and hiring fell to their lowest since 2020.
How to improve your odds
- Start where you have a relationship. Bank applicants most often chose their lender because they already banked there, and small banks approved the highest share.
- Match the product to the purpose. Loans secured by equipment or vehicles were approved far more often than unsecured credit.
- Read the full cost before you sign. Speed is why most borrowers choose online lenders, and cost is their most common surprise.
- Build the business's own credit early. Most owners end up guaranteeing their business debt personally, so every month of separate business credit history helps.
A note on the data: the survey is a large convenience sample rather than a random one, and the Federal Reserve cautions readers to interpret its results with that in mind.
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Sources
- Federal Reserve Banks, 2026 Report on Employer Firms: Findings from the 2025 Small Business Credit Survey
- Federal Reserve Banks, 2026 Report on Nonemployer Firms
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