An Overview of Small Business Financing


Statistics show that in five years, half of the small businesses started today will no longer exist. That’s only a 50% survival rate in the first five years. But whether these businesses succeed or not relies on much more than the flip of a coin. If you’re starting a business in 2023 or just hoping to thrive this year, keep reading. We’ll take a look at how loans vary by business category and how to improve your chances of getting a small business loan. First, let’s check out some more stats:

  • 99.9% of American businesses are small businesses.
  • 61.7 million workers are employed by small businesses [1].
  • 38% of startups fail because they lack capital [1].
  • 47% of small businesses get the loan amount they apply for [2].

Getting funding is a part of the professionalization and development of any business. Yet so many small businesses aren’t getting enough. How many small business owners seek funding to begin with and where does the funding come from? Here are a few answers:

  • 87% use their own funds to launch
  • 16% use bank loans
  • 2-6% comes from family and friends [3]

Those are the startup facts. But every small business will need funding beyond the first year. Small businesses applying for credit in 2020 looked to big banks first, and only a few went for CDFIs. Here’s the breakdown:

  • 68% applied to banks
  • 18% to finance companies
  • 7% to credit unions
  • 5% to fintech and online lenders
  • 2% to Community Development Financial Institutions [4]

But is this the ideal breakout for loan applications? We’ll address that later, but part of the answer has to do with the type of organization and the stage of business it is in.

Let’s move on to an overview of business categories and how they affect financing eligibility.

Sole Proprietorship

This is not a corporation, but an individual that owns and runs a company. The owner of the business and the business itself are legally and financially inseparable. That means the owner is fully liable for any debts owed by the company. If you’re seeking loans as a sole proprietorship, lenders will look at your personal credit history and personal assets. It’s essentially like taking out a personal loan, but you’ll need a business license.


If a business is owned by two or more people, it’s probably a partnership. The level of liability each partner in the business has depends on the type of partnership. A general partnership means that all partners are liable. If partner A defaults on a loan, partner B’s assets can be used to repay the debt. Limited partnerships mean there’s one general partner and the other partners have a limited stake in the company. A limited liability partnership protects each partner’s assets from the liabilities of the business.

Unless you’re in a limited liability partnership, all the partners in the business are responsible for any loans. It’s important everyone is fully informed and agrees to take on a debt together. You’ll need a copy of your partnership agreement to apply for a loan.

Limited Liability Company

Not to be confused with a limited liability partnership, an LLC is its own legal entity. The owners are not liable for the business’s debts with their personal assets. When applying for a loan, an LLC has its own credit score and history. However, the owners’ personal credit is still taken into account.


Corporations have shareholders and can survive after the owners of the business are gone. Like with an LLC, a corporation has its own legal status and personal assets are protected. C corporations are the most common, but there are also S corporations and nonprofit corporations. Be prepared to show the company’s articles of incorporation, credit history, and time in business when applying for a loan.

How to Proceed as a Business Borrower

Navigating the business loan landscape isn’t always easy. The type of company you are, the time you’ve been in business, and how profitable your business is will affect which loans are available to you. As a small business, it’s important to be creative when looking to tap into sources of financing. Just because big banks lend to small businesses doesn’t mean they should be your go-to for funding.

Loan brokers are in the business of matching different types of small businesses with the loans that match their goals and circumstances. Because brokers aren’t beholden to any particular lender, they’ll help steer you toward funding that will work best for your business. That means you can compare loans across lenders to see which can give you the most affordable financing. Brokers also provide insights to paths each business owner can take.

If you’re a small business owner looking to start or grow your company, work with a broker to evaluate your business scenario and find financing solutions that can work. They’ll help show your company in the best light to lenders and give you ways to boost your loan success.


[1] Forbes. “Small Business Statistics”

[2] Office of the Comptroller of the Currency. “Small Business Road Map to Financial Resources”

[3] Chamber of Commerce. “Small Business Statistics”

[4] The Federal Reserve. “Availability of Credit to Small Businesses”

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