Which kind of lender should a small business apply to first?

Written by Kaz · Published 27 September 2026 · How figures are checked

Summary

A small bank, on the Federal Reserve Banks' 2025 Small Business Credit Survey: 57% of small-bank applicants were approved for the full amount they asked for, against 42% across all lender types, and the share of small-bank borrowers who found the cost higher than expected was close to the share at large banks and far below the 60% at online lenders. That order holds for the survey's population, employer firms in the United States with 1 to 499 employees, and the survey is a convenience sample, so it gives a sensible starting point rather than odds for any one application.

What the survey measured

The figures come from the Federal Reserve Banks' 2026 Report on Employer Firms, published in March 2026. The survey ran from September 3 to November 14, 2025, and drew 6,525 responses. Because respondents were not selected at random, the report itself says results should be read with that in mind.

The report's lender groups are specific. Large banks have at least $10 billion in assets and small banks less. Online lenders are nonbanks that operate online, with OnDeck, CAN Capital, and PayPal Working Capital as examples, and finance companies are nonbanks that provide loans, leases, and other financial services.

Where firms applied and how it went

Applicants most often went to large banks, then online lenders, then small banks. The online share has climbed from 17% of applicants in the 2020 survey to 29% in the 2025 survey, so the lender type that is gaining fastest is also the one whose borrowers reported the most cost surprises.

Across all lenders, 36% of applicants got some or most of what they asked for and 22% got nothing, on top of the 42% approved in full. The 57% at small banks is the figure that separates them from the rest.

Cost surprises are where the gap is widest. Among firms that borrowed from online lenders, 60% said actual borrowing costs were higher than expected and 4% said lower. At small banks the higher-than-expected share was 37%, and at large banks 32%. Credit union and bank applicants were more satisfied than online lender and finance company applicants, and at online lenders the most common complaints were high interest rates and unfavorable repayment terms.

Part of the online gap is how the price is quoted. Some online products state a factor rate instead of an interest rate, and the two are not comparable until one is converted; the factor rate page shows the arithmetic.

Credit unions have a cap on business lending

Credit union applicants were among the most satisfied in the survey, but federal rules in 12 CFR Part 723 limit how much a federally insured credit union can lend to businesses, which is one reason a good application can still be turned away there. A commercial loan to a member counts toward the cap once the borrower's combined balance reaches $50,000. The total of those member business loans can't exceed the lesser of 1.75 times the credit union's actual net worth or 1.75 times the net worth the law requires, though credit unions with a low-income designation or in the CDFI program are exempt. A single borrower is generally limited to the greater of 15% of the credit union's net worth or $100,000, so a credit union near either limit has little room for a new loan however strong the business.

CDFIs and SBA's matching tool

Community Development Financial Institutions are certified by the Treasury's CDFI Fund to serve low-income communities and people who lack access to financing. They include community development banks and credit unions as well as unregulated loan and venture capital funds, and there are certified CDFIs in all 50 states. For a business that mainstream lenders have declined, that is the lender type whose certification is built around serving it.

For SBA-backed loans, Lender Match collects interested lenders for you. More than 800 lenders take part, and SBA sends a summary of the interested ones two business days after the request. Every participant offers SBA-approved loans and many offer conventional loans too. Lender Match isn't a loan application, and using it doesn't guarantee a match or an offer.