Business Financing Challenges Revealed in SBCS Report
Business Financing Challenges Revealed in SBCS Report
The 2024 Small Business Credit Survey (SBCS), conducted by the Federal Reserve Banks from September to November 2023 and published on March 28, 2025, provides critical insights into small business financing trends. The survey, which gathered responses from over 7,600 small employer firms (1–499 employees) across the United States, highlights financing purposes, denial rates, and funding outcomes, shedding light on the challenges small business owners face in securing acquisition loans.
2025 Report on Employer Firms: Findings from the 2024 Small Business Credit Survey
Regarding financing, the share of firms that applied for loans, lines of credit, or merchant cash advances remained stable year over year, as did approvals. However, SBCS shows applicants' satisfaction with their lenders decreased and plummeted with online lenders.
Financing Purposes:
According to the 2024 SBCS 59% of small business firms sought financing in the prior 12 months, with 46% of these applicants seeking funds for business expansion, to pursue new opportunities, or to acquire business assets. Specifically, 25.4% of respondents cited business acquisitions as one of their top three reasons for seeking financing, alongside other purposes like operating expenses (63%), equipment purchases (29.4%), marketing (28.6%), and commercial real estate (26.8%).
This indicates that a significant portion of small businesses, including advisors, pursue acquisition loans to buy practices or assets, critical for growth or succession in the RIA/IBD space.
Denial and Funding Outcomes:
Of the 59% of firms that applied for financing (loans, lines of credit, or merchant cash advances), 24% were denied all financing, and 36% received only partial funding. This means 60% of applicants (24% fully denied + 36% partially funded) did not secure the full amount requested.
For the 25.4% of applicants seeking acquisition funds, these denial rates (24% fully denied, 36% partially funded) imply that a substantial number of acquisition-focused applicants faced insufficient funding. While the survey doesn’t break down denial rates specifically for acquisition loans, the overall 60% shortfall suggests many in this 25.4% likely struggled to secure full financing for practice purchases.
Implications for Acquisition Opportunities:
Although the SBCS does not explicitly quantify how many acquisition opportunities were lost due to denials or partial funding, the 60% shortfall in full funding strongly suggests that many applicants were unable to complete acquisitions. Insufficient funding often prevents deal closure, as buyers cannot meet seller terms or cover the full cost.
A denied or underfunded acquisition loan could directly result in losing a target business acquisition, as sellers may move to other buyers with ready financing. This is particularly critical in competitive markets where timely funding is essential to secure a deal.
Lender Satisfaction:
The 2024 SBCS notes that 41% of firms denied all or some financing cited “too much debt” as a reason, up from 22% in 2021, with other common reasons including strict lender requirements, borrower financials (76% of denials), credit history (33%), and insufficient collateral (35%). These factors likely disproportionately affect acquisition loans, which often require significant capital and strong financials.
Online Lenders: The SBCS reports net satisfaction with online lenders dropped from 15% in 2023 to 2% in 2024. Wow. Net satisfaction is calculated as the percentage of applicants satisfied minus those dissatisfied. Applicants at online lenders faced high interest rates and unfavorable repayment terms cited as the most common challenges, driving the sharp decline.
Bank Drops: The SBCS does not provide specific net satisfaction percentages for small or large banks in 2024, only noting an overall decline in satisfaction across all lender types. For banks specifically, dissatisfaction reasons included long wait times for decisions and difficulty contacting lenders, per the survey’s applicant experience data.
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Source: https://www.fedsmallbusiness.org/reports/survey/2025/2025-report-on-employer-firms