Small businesses create more jobs than any other industry sector. In fact, over half of Americans either own their business or work for a small business, and two out of three jobs in the country every year are possible because of start-ups. Implementing any needed regulation at the federal level vs. a patchwork of state by state regulations is the best way to make sure small businesses are in a position to continue creating the jobs America needs.
A majority of small business owners seek loans of less than $250,000 in order to start or grow their company. Unfortunately, after the 2008 market crash, most traditional lenders moved upstream to target loan sizes greater than one million dollars. The result created a halt in small loan funding that left many small businesses without access to capital.
In order to fill this funding gap, various online marketplaces have sought to create innovative underwriting platforms and technologies to provide working capital, making it a lot easier for small businesses to find the funding they need. Even at the smaller loan sizes that vanished from the field. As a market that works to match small business owners to a variety of lenders and loan products.
The top ten states for a small business loan are:
- New Hampshire
The First Five
Among the top five states, the average loan size ranged from $14,500 in Vermont to $39,000 in Utah. The approval ratio for loans ranged from 52% in California to 68% in Vermont, compared to 33% to 34% at large banks in each state, according to the 2015 Small Business Credit Survey (SBCS).
In general, specific states have not been concerned with marketplace lending, viewing it as a beneficial technology involving many of the same steps as traditional lending with statutes and regulations adequately protecting borrowers from risk. However, a small business loan is subject to various federal/state regulations and licensing authorities are increasingly turning their attention to the small business side as the sector grows. Such regulations may have a momentous effect since each lender must either obtain a required license or qualify for a federal or state specific exemption.
Licenses are typically granted on a state by state basis and the requirements vary. In some states, the licensing process is fairly simple. That being said, in other states it is more involved and the process can take months.
California came in at number two on our list of best states for a small business loan. According to the Office of Advocacy at the U.S. Small Business Administration, 99.2% or $3.7 million of the total commerce in California is generated by small companies. These small businesses employ close to half of the workforce, or in other words, 6.7 million are working in this sector alone in the state.
This activity gives a huge boost to the financial sphere as well. According to the FFIEC, in 2014, lenders in California made loans worth over a $11 billion. Entrepreneurs took out more than $800,000 loans in amounts of less than $100,000.
California has rigorous regulations in place specific for a small business loan and requires state licensing, a complex process that often hinders access to necessary capital. Under California’s Finance Lenders Law, businesses must obtain a license from the California Department of Business Oversight prior to making or brokering a loan.
Both New York and Illinois have also recently discussed potential statutes specific to marketplace lending.
Small business lending is in a much better place today than it was in the several years following the 2008 crash. Through private lenders, thousands of small businesses have been able to obtain the funding they need to create and grow jobs.
While some argue that additional restrictions are necessary, typically focusing on the interest rates attached to some short term loans, state by state regulations will ultimately stifle economic growth and impact the availability and terms of a small business loan. Ideally, any regulation will be executed on a federal level, thus limiting the requirement of having 50 different rule books that a lender or broker would need to abide by.