As banks continue to retreat from small business financing, market opportunities for non-bank lenders to access the 28 million small businesses in the U.S. continues to grow. According to new research from boutique investment banking firm Colonnade Advisors, this market for small business finances is now reaching almost $1 trillion in annual funding.
Small businesses employ 48% of the U.S. labor force and accounts for 99.7% of the businesses in the country. About 45% of small businesses sought credit within the last 12 months, but those with revenue under $100,000 were 50% less likely to receive their requested financing when compared with those having revenue over $10 million. However, 59% of credit requests were for $100,000 or less and 44% were under $50,000.
The number of merger and acquisition (M&A) transactions within the small business sector surpassed 50 within the last 36 months. The pace of M&A activity within the small business sector increased in the last year and Colonnade expects activity to remain high.
“Small business lending is a significant, growing segment of the financial services sector. Many small business finance companies enjoy high asset margins and have attracted a broad range of investors and debt sources,” stated Collonade in its report on the topic. They continued, “We expect to see continued high levels of acquisition and capital markets activity in small business lending over the next two years; the slowdown will likely hit when the current economic expansion comes to an end.”
