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Bank Funding of Small Businesses Dried Up During and After Recession, According to the Study

Biz2Credit, the leading online credit marketplace, today released the results of a study of bank failures sorted by state and their impact on small business borrowers.

"The failure of so many small banks in Georgia and in Florida created a Credit Desert," said Rohit Arora, CEO of Biz2Credit, who oversaw the research. "The housing market bust hit particularly hard in the Southeast, which resulted in bank failures and risk averse lending behaviors by those banks that survived. Thus, small business owners were stymied in their attempts to secure capital -- even when their companies had solid credit scores."

A result of banks' reluctance to fund small business ventures was the rise of alternative lenders -- merchant cash advance, factors and other non-bank entities -- in the marketplace. While these lending institutions made financing available, often the money came at a high interest rate.

"Small business owners were caught between a rock and a hard place. If they needed money, many times the only willing lenders were cash advance companies that charged interest rates of 30 to 40 percent." Arora added. "Borrowing money at those rates and terms simply is not a sustainable funding option in the long term."

States with the Percentages of Bank Failures

StateFailed Banks% of Failed Banks in U.S.% of Alternative Lenders' Funding Nationwide
Georgia 82 18.5% 10.5%
Florida 68 15.3% 9.3%
Illinois 55 12.4% 7.1%
California 34 7.6% 13.8%
Minnesota 21 4.7% 0.1%
Washington 18 4.0% 0.1%
Arizona 15 3.3% 1.7%
Missouri 14 3.1% 0.7%
Michigan 12 2.7% 4.9%
Texas 9 2.0% 3.5%
Nevada 9 2.0% 0.7%
Colorado 9 2.0% 0.1%
South Carolina 9 2.0% 0.2%
Wisconsin 8 1.8% 0.5%
Maryland 8 1.8% 0.1%
North Carolina 7 1.5% 10.3%
Alabama 7 1.5% 0.4%
Pennsylvania 6 1.3% 2.5%
Oregon 6 1.3% 1.5%
Utah 6 1.3% 0.3%
New Jersey 5 1.1% 10.3%
Tennessee 5 1.1% 3.1%
Oklahoma 5 1.1% 0.3%
New York 4 0.9% 9.5%
Virginia 4 0.9% 1.4%
Ohio 4 0.9% 0.1%
Indiana 3 0.6% 2.8%
Iowa 2 0.4% 0.2%
Louisiana 2 0.4% 0.7%
Mississippi 2 0.4% 0.5%
Kentucky 2 0.4% 0.1%
Connecticut 1 0.2% 0.6%
Massachusetts 1 0.2% 0.8%
Delaware 0 0.0% 0.1%
New Hampshire 0 0.0% 0.1%
Rhode Island 0 0.0% 0.1%
Vermont 0 0.0% 0.1%
Grand Total 443 100.0% 100.0%

Top 4 states with the highest number of bank failures (Georgia, Florida, Illinois & California) represented 40% of the total amount of alternative lending deals arranged by Biz2Credit.com



The states with the largest numbers of alternative lenders on the Biz2Credit platform were consistent with the states that had the most failed banks.



Other key findings of the Biz2Credit "Credit Desert" Report:

  • Small businesses in operation for 4-8 years were the most successful in securing capital. More than 33% percent of borrowers who received funding through Biz2Credit had their businesses between 4-8 years old. Companies in operation for one year or less, accounted for 7.5% of approved loans, while those in operation for 1-2 years secured 7.8% of the total number of deals funded through Biz2Credit. Companies aged 2-4 years accounted for 16.5%, while firms older than 10 years comprised 19.8% of the funded deals.
Age Bucket (Months)Cases% of CasesAmount% of Amount
0-12 (1 yr or less) 505 12.5% $16,382,589 7.5%
13-24 (1-2 yrs) 382 9.4% $17,112,963 7.8%
25-50 (2-4 yrs) 981 24.3% $36,128,759 16.5%
51-100 (4-8 yrs) 857 21.2% $72,552,888 33.0%
101-150 (8-12 yrs) 610 15.1% $34,213,664 15.6%
151-200 300 7.4% $10,922,459 5.0%
201-250 167 4.1% $9,242,280 4.2%
251-300 83 2.0% $19,196,240 8.8%
301-350 145 3.6% $3,873,389 1.8%

Age of Business compostion Graph

Though more number of loans (24.34%) have been funded where small businesses were between 2-4 years old, funded amount was higher (33.03%) for 4-8 years old businesses. It shows that alternate lenders were hesitant to lend more money to younger businesses during Credit Desert.



  • Companies with credit scores between 601 and 700 comprised about half of alternative lending deals arranged by Biz2Credit, while companies ranging between 651 and 750 received the higher percentages of successfully funded amounts:
Credit ScoreCases% of CasesAmount% of Amount
500-550 230 5.9% $7,769,900 3.9%
551-600 977 25.3% $20,093,460 10.0%
601-650 744 19.2% $31,160,856 15.6%
651-700 1223 31.6% $64,110,049 32.1%
701-750 602 15.6% $69,717,464 34.9%
751-800 87 2.3% $6,804,860 3.4%
801-850 2 0.1% $131,000 0.1%

credit score wise alternate Graph

31.64% of funds were distributed to businesses with a credit score between 651 and 700. But businesses with a credit score between 701 and 750 received most funding, amounting to 34.9% of total alternative funding amount. It implies that people with higher credit scores had easier access to financing.



  • States hit hard by the housing market bust including Georgia and Florida in the South-Eastern Credit Desert, saw larger numbers of alternative lenders.
StateAlternative Lenders
California 34
Pennsylvania 32
Florida 31
New Jersey 31
Georgia 30
Alaska 30
Arizona 30
Delaware 30
Illinois 30
New York 30
South Carolina 30

About Biz2Credit

Founded in 2007, Biz2Credit has arranged more than $1.2 billion in small business funding throughout the U.S. and is widely recognized as a leading online credit resource for startup loans, lines of credit, equipment loans, working capital and other funding options. Using the latest technology, Biz2Credit matches borrowers to financial institutions based on each company's unique profile -- completed in less than four minutes -- in a safe, efficient, price-transparent environment. Biz2Credit's network consists of 1.6 million users, 1,300+ lenders, credit rating agencies such as D&B and Equifax, and small business service providers including CPAs and lawyers. Visit www.biz2credit.com, follow on Twitter @Biz2Credit, and Facebook at www.facebook.com/biz2credit.

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