Lendio Reports Midwest Leads SMB Lending Index

The U.S. small business lending landscape saw tighter financing requirements, as reported by the Q1 2024 SMB Lending Index from Lendio. Despite these stringent conditions, lenders have cautious optimism about potential market improvements.

The SMB Lending Index evaluates how accessible business financing is to small business owners, using data from over 18,000 small businesses that sought funding through Lendio’s marketplace. A higher index score signifies better accessibility. The Midwest led with the highest average index score of 66, closely followed by the South at 65.7.

Sectors like automotive, manufacturing, and utilities saw reduced financing accessibility, whereas education, legal services, and wholesale sectors experienced an increase.

Feedback from 25 small business lenders showed divergent views. Those with a negative outlook pointed to challenging macroeconomic conditions and rising interest rates.

Minyang Jiang, Chief Strategy / Revenue Officer at Credibly, noted, "Many lenders, including banks, are tightening their credit due to these adverse economic conditions and increased capital costs."

Conversely, more optimistic lenders highlighted the growth of the market, bolstered by the rise of alternative lenders, advancements in technology, and a variety of financing options.

However, Lendio's additional research indicates that small and medium-sized businesses (SMBs) in the U.S. are still not adequately served. Sixty-five percent of SMBs reported that the loan terms and funding amounts fell short of their expectations. Moreover, 67% had no preference regarding the type of lender, and half were unaware of the financing options provided by their banks.

Brock Blake, CEO of Lendio, emphasized the mismatch between traditional banking structures and small business needs, stating, "The current system wasn't built for small business owners, which presents a significant untapped market. We need an ecosystem that supports small businesses effectively, integrating services from banks and other vendors instead of forcing a choice between banks and alternative lenders or shifting entirely to banking-as-a-service."

Our Opinion:

This report reveals the disconnect between small businesses' expectations and the actual financing available, indicating a need for improved education and transparency in lending processes. It suggests significant market opportunities, especially for alternative lenders, to collaborate with banks and service providers to better support small businesses.

1-Minute Video: Underwriting Automation of General Merchant Funding

"As soon as the file is entered, the system automatically pulls the Secretary of State data. It's not a manual process anymore, which speeds up It sounds like it's little, but that could speed up a minute on each file. So when you add that up over thousands of files in a month, you're getting a lot of time back, which, speeds up the process." - Craig Clark, Owner of General Merchant Funding

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