7 Statistics Everyone Should Know About Business Financing

Business financing is the process of acquiring capital to start a business and funding to run and maintain the business. It mainly involves business loans and alternative financing such as crowdfunding. Business financing is based on the fact that you have to spend money to acquire money. Is it easy to acquire business financing? Where can you get business financing? What is the cost of starting and running a business? The following are some current business financing statistics that will help answer these questions and more.

1. $10,000 is the average amount needed to start a business

The amount you need to start depends on some factors including the size of a business and the industry. However, according to Wells Fargo Small Business Index, the average amount of capital for a startup is $10,000. Intuit supports this number and suggests that most startups are self-funded. But, not everyone has $10,000 to start a business. The following are some popular business financing options :

• Personal business loan
• Small business loan
• Microloans
• Crowdfunding
• Credit form vendors
• Business credit cards

Also, you might even need less than $10,000 to start a business. Online businesses require less funding. Some businesses such as freelance copywriting and web design only require a computer and internet access to get started.

2. Banks are still the largest source of business loans

In today’s online world it is easy to assume that fintech companies have already phased out banks. But, both large and small banks are still the largest source of business financing. In 2017, more than 50% of small businesses applied for business loans at large banks. Only about 25% of businesses applied for loans through online lenders. Furthermore, the number of businesses applying for loans has declined. In 2017, only 40% of businesses applied for a loan. The decreased competition means those that request loans have a higher chance of approval.

3. 59% of businesses take loans to level up

In 2017, the main reason why most businesses applied for loans is to level up. That is not strange in a strong economy. As much as 59% of businesses took loans to expand their business. The second most common reason for taking loans was to correct cashflow issues. About 40% of businesses took loans to cover overhead expenses. Do these numbers mean that some businesses were not hurting? No. But most entrepreneurs are smart enough to know it is bad math to take a loan to save a sinking business. Also, you will probably not find a financial institution willing to risk their money in a failing business.

4. 20% of businesses find it difficult to access traditional funding

About 20% of small businesses face difficulties when borrowing from traditional forms of funding such as banks. 30% of these businesses feel that these lenders charge high interests to discourage them from applying for loans. Another 16% feel that lenders have time-consuming and rigid application processes. Therefore, it is likely that more than 80% of small businesses will try alternative sources of funding such as invoice factoring. It is estimated that by 2020, alternative sources will account for 20.7% of the US business financing market.

5. The typical cash flow of a small business is $7

According to JP Morgan Chase Institute, the average daily cash flow for a small business is $374, and inflow is $381. The difference is only $7. And, on some days, businesses have a negative cash flow. Remember cash flow is one of the main reason businesses apply for loans. Another option for businesses to counter severe imbalances in cash flow is cash buffer. Yet, the typical small business only reserves only 27 cash buffer days.

6. 82% of business owners do not know how to interpret their business credit score

The credit score is one of the key factors that lenders look at when approving loan applications. According to a report by Nav, 45% of business owners do not know business credit score exist and 82% cannot accurately interpret their credit score. The understanding credit score is important when applying for business loans. That explains why business owners who understand their credit score are 41% more likely to have their applications approved.

7. Only 7.3% of business owners regret taking loans

According to a 2017 study by Finder.com, only 7.3% of business owners regretted taking business loans. That figure is attributed to the fact that most new businesses were thriving. About 80% of businesses opened in 2016 were still running in 2017. And, nearly 70% of businesses established in 2015 are still running. Business financing is important for startups as well as existing businesses. It is especially helpful during expansions and in times of cash flow deficits. However, it is important to understand the latest business financing trends to make good decisions.

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