• George Cook

Is Main Street being shortchanged?

Updated: Aug 10


A small stack of spare change on top of a table

Here at Honeycomb Credit, we're dedicated to supporting individual businesses in our communities, and we're sure you're the same, whether you're running your own business or being loyal customers of small businesses in your neighborhood.

But it's also important to take a step back and understand the big picture of how small businesses are doing across the country. We also know that this data is often buried in long, dense economic reports that you may not have the time to read. So we decided to do the digging and reading ourselves. Here are the top trends of the state of small business lending in 2018, explained in three easy charts!

A line graph showing an increase in small businesses from 2010 to 2017

Good News: Small businesses are back and stronger than ever

In the recent few years, the strong economy in the United States has also brought good tidings to small businesses. In 2017, the Bureau of Labor Statistics reported that the number of small businesses is at an all time high—at 4.9 million small businesses.

What’s more, small business owners are in high spirits. According to the September 2018 NFIB Small Business Economic Trends Report, the Small Business Optimism Index is at 107.9, less than a point off from the record-high index reading of 108.8 in August 2018. With optimism in the air, small business owners are also feeling readier to take on growth projects. 33% of small business owners believe that now is a good time to expand their business, as opposed to 7% in 2016.

A line graph showing small increase in small business loans from 2005 to 2017

Good News: Small business lending is also making a comeback

According to the FDIC, banks lent over $350 billion to small businesses in 2017, finally returning to pre-recession levels. Sure enough, the top reason for a small business to apply for a loan was to finance an expansion project or new opportunity (59%). Although the recovery appears to be stronger for larger small businesses, financing is not a huge concern for the majority of small businesses. According to the NFIB, only 3% of business owners cite financing as their top business concern.

A line graph showing disparity between high enterprise loans and low small business loans

Bad News: Small businesses are not getting the credit they deserve

It may seem that it’s all smooth sailing from here on out for small businesses. However, comparing the growth of small business lending to that of enterprise lending paints a very different picture: from 2005-2017, enterprise lending increased by 200%, yet small business lending flatlined in the same period. Despite the promising signs of economic growth nationwide, the small business lending gap has gotten larger—not smaller.

What’s more, 46% of small businesses that applied for a loan in 2017 received less than the amount they needed, while 22% were unable to get access to any financing (Federal Reserve). While these rates both indicate improvements from the year before, noteworthy gaps still exist.

What does this all mean?

Could it be that Main Street is getting shortchanged? Or are alternative financing options like community development financial institutions (CDFIs) and online lenders like Kabbage picking up the slack? Finally, where do crowdfinancing platforms fit into this picture?

In the following weeks, we’ll be walking through the players in the small business lending industry and breaking down the benefits of each player.