"How do small businesses get funding?" usually gets answered with a list of products: SBA loans, bank lines of credit, online lenders, merchant cash advances, friends and family. That's a catalogue, not an answer.
The more useful question is what small businesses actually do — where they apply, what they get, and what it costs them. There's good data on that, and some of it is uncomfortable.
Where These Numbers Come From
The Small Business Credit Survey is run jointly by all twelve Federal Reserve Banks. The most recent round was fielded from September 3 to November 14, 2025 and drew 6,525 responses from employer firms with 1–499 employees across all fifty states and the District of Columbia.
One caveat the Fed states plainly and so will we: the SBCS is a convenience sample, not a random one. It's the best regularly published picture of small business credit experience in the country, and it should be read for direction rather than decimal-point precision.
Almost Every Small Business Uses Financing
Start with the baseline: 86% of firms use financing on a regular basis, most commonly credit cards and loans. Borrowing isn't an edge case or a distress signal. It's the normal operating condition of a small business.
At the same time, 31% of firms carry no outstanding debt — up from 21% in the 2020 survey, back to roughly pre-pandemic levels.
And among firms that do carry debt: 59% secured it with a personal guarantee, and 51% with business assets.
That personal guarantee figure is the one worth sitting with. For most small businesses, "business financing" is not really separate from personal financial exposure. The corporate veil is thinner than the paperwork suggests once you've signed.
Who Applies, and Where
In the twelve months before the survey, 60% of firms applied for financing of some kind, and 38% applied specifically for a loan, line of credit or merchant cash advance — nearly unchanged from the prior year.
Where they went, in order: large banks first, then online lenders, then small banks.
The online lender share has been climbing steadily. The proportion of applicants seeking financing at online fintech lenders went from 17% in the 2020 survey to 29% in the 2025 survey — five consecutive years of growth.
What Happens to Applications
| Outcome | Share of applicants |
|---|---|
| Received the full amount sought | 42% |
| Received some or most of it | 36% |
| Received none | 22% |
So roughly four in ten applicants get everything they asked for, and about one in five get nothing at all.
Lender type matters. Applicants who went to small banks were the most likely to be fully approved, at 57% — higher than any other source. Which is a useful corrective to the assumption that the biggest institution is the most likely to say yes.
The Part That Isn't in the Brochure
Approval isn't the end of the story. The survey asked borrowers whether their actual costs matched expectations:
| Borrowed from | Reported costs higher than expected |
|---|---|
| Online lenders | 60% |
| Small banks | 37% |
| Large banks | 32% |
Six in ten online lender borrowers paid more than they thought they would. Only 4% found costs lower than expected. High interest rates and unfavorable repayment terms were the most common complaints, and satisfaction with online lenders trailed every other channel.
If that pattern sounds familiar, it should. It's the same structure as merchant processing: a headline number quoted going in, a different number that comes out at the end of the month, and a contract complicated enough that most people don't reconcile the two. The fix is the same too — calculate the effective cost yourself rather than trusting the quote.
Why Businesses Borrow — and Why It Matters
The two most common reasons firms sought financing:
- Meeting operating expenses — 56%
- Pursuing an expansion or new opportunity — 46%
Read that first line again. The most common reason a small business borrows money is not to grow. It's to cover the gap between what comes in and what goes out.
That's a margin problem being solved with debt. It works, until it doesn't — and there's a direct line from there to the approval data. Firms denied all or some of the financing they applied for were far more likely in 2024 than in 2021 to say the reason was that they already had too much debt — 41% versus 22%. Borrowing to close a margin gap makes the next application harder, which makes the gap harder to close.
Position Before You Apply
The lesson that falls out of this data isn't "don't borrow." It's that the state of your cost structure decides both whether you need to borrow and what it costs you when you do.
Which puts a plain question in front of any owner considering an application: which of your recurring costs have you actually audited? Rent gets negotiated. Payroll gets reviewed. Payment processing gets paid automatically, every month, by a business that in most cases has never calculated what it's really paying.
For most small businesses that runs 2% to 3.5% of card revenue. It's one of the very few costs that can be reduced without cutting staff, changing suppliers or raising prices — which makes it the cheapest margin available. Here's the full math on what that gap is worth.
And if it's SBA capital you're weighing specifically, SBA lending has been running at record levels — with underwriting that reads margin more closely than it used to.
Start With the Number You Control
Clear Front Consulting reviews merchant processing statements for free. Send a recent statement and we'll calculate your true effective rate, identify your pricing model, flag padded fees, and show you what a competitive rate looks like for your volume and card mix.
About 20 minutes, no obligation, and an honest answer either way — including "you're fine, leave it alone," which is a genuinely useful thing to know before you go asking anyone for money.
Source: Federal Reserve Banks, 2026 Report on Employer Firms: Findings from the 2025 Small Business Credit Survey (published March 3, 2026; survey fielded September 3 – November 14, 2025; 6,525 responses from employer firms with 1–499 employees across all 50 states and DC). Denial-reason figures are from the 2025 Report on Employer Firms. The SBCS is a convenience sample, not a random one.