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Starting or growing a small business can be daunting, especially in terms of affordable access to capital. Without sufficient capital, small businesses often have to close down prematurely or slow down operations. To date, Fundera has helped thousands of small businesses grow, facilitating over $1 billion in funding. Fundera connects small business owners with loans from alternative lenders, SBA lenders, and banks.
The State of Small Business Lending is Fundera’s quarterly look at funding access, availability, and cost for small business owners. For the first quarter of the year (Jan. 1 to March 31, 2019), we analyzed data from 58 industries and 6,500 business owners who applied for a business loan on Fundera.
In this report, we highlight the 10 industries most likely to fund during the quarter. A mix of product and service industries made the top 10, indicating that this is a good time for a wide range of businesses to secure financing. For each industry, we looked at average funding amount, annual revenue, profit, credit scores, and number of employees. Analyzing which industries most successfully obtained funding and understanding why can help other small businesses in their search for financing.
Here’s an infographic summarizing the results, followed by an in-depth analysis.
None of the top 10 industries of the first quarter reported perfect financials across the board, and larger market and economic factors played a role in boosting some industries over others. That said, the most successful industries in securing financing shared the following three factors in common:
The businesses most likely to receive financing through Fundera showed above-average annual revenue. Eight out of 10 industries reported annual revenue above the overall average of $878,078. In contrast to revenue, profit was not a determining factor of funding success. Nine of the 10 top industries (creative and marketing was the only exception) reported annual profits below the average of $135,617.
Lenders place more emphasis on annual revenue, rather than profit numbers. Revenue has greater impact on a business’s ability to secure funding because you need to show a reliable income stream to support loan repayment. Many upper-tier lenders, such as banks and SBA lenders, do consider profit in deciding whether to approve an applicant for a loan. However, it’s not the most important factor. Even when lenders do consider profit, whether a company is profitable or not is often more important than the size of those profits.
The most popular types of financing among small businesses in the first quarter of 2019 were short-term loans and short-term lines of credit. With these types of financing, you pay back the money that you borrow in fewer than three years, often over just a few months. Sixty percent of businesses that came to Fundera in the last quarter were seeking working capital, which helps companies pay for things like payroll, rent, and supplies. Eighty-two percent of businesses in the last quarter ended up with a short-term loan or short-term line of credit. Short-term financing is ideally suited for day-to-day working capital expenses.
It’s relatively easy to obtain short-term financing because the lender doesn’t have to trust the borrower with their money for too long. As a result, lenders pay less attention to credit scores and long-term profitability, and more attention to revenue. They want to see that a borrower is regularly generating income from which to pay off the loan.
Both personal and business credit scores are important for securing financing. Since businesses tend to have high failure rates, lenders rely first and foremost on business owners’ personal credit scores to judge whether they’ll be able to pay back a loan. The FICO score, which is the most popular type of personal credit score, follows a 300 to 850 range. A good credit score generally falls between 670 to 739. Banks and SBA lenders generally require credit scores in this range, but short-term lenders will go lower.
Business credit is another important factor. Equifax business credit risk score tracks a company’s credit history with vendors and suppliers and ranges between 101 and 660. The higher the score, the better your business credit.
Fundera’s overall personal credit score average for the quarter was 663, and the overall business credit score average came in at 429. All but two of the highest ranked industries (building materials and home furnishing, and construction and materials) had higher than average personal credit scores. Six of the 10 top ranked industries reported business credit scores above the average.
Here’s a deeper look at each of the 10 industries most likely to secure financing on Fundera in the first quarter of 2019:
Electronics manufacturers were most successful in obtaining funding through Fundera in the first quarter of the year. Businesses in this industry produce consumer, industry, or military electronics components or finished electronics. Electronics manufacturers secured an average funding amount of $53,714, 16% above the quarter’s average.
Most of these businesses—71%—secured short-term loans. Eighty-three percent of electronics manufacturers cited working capital as the primary reason for seeking a loan, and 10% cited the need for equipment.
Annual revenue was the main metric that took manufacturing electronics to the number one spot. Electronics manufacturers reported higher annual revenues—$1.8 million on average—than businesses in any of the other 57 industries. Their average was 105% higher than the overall revenue average of $878,078.
On average, electronics manufacturers that applied to Fundera for a loan had a longer average time in business than other industries. Electronics manufacturers were 8.6 years old, compared to the overall average of 7.43 years. Lenders value stability in borrowers, so the older a company is, the more likely it is to get funding.
This quarter, electronics manufacturers that came to the Fundera platform demonstrated:
The building materials and home furnishing industry was a close second to electronics manufacturers in likelihood of securing funding. These businesses manufacture or sell materials for residential or commercial construction or home furnishing. Although these businesses were likely to get approved for funding, they qualified for only $26,454 on average, less than half of what electronics manufacturers secured.
More than half of building materials and home furnishing businesses opted for short-term lines of credit. Sixty-four percent of these businesses cited working capital as their primary reason for seeking financing, with 16% citing expansion and another 15% citing equipment.
Building materials and home furnishing businesses performed at or below average for several metrics, with the exception of business credit. The average Equifax business credit score for building materials and home furnishing industries was 443.50, which is 3% higher than the overall average of 429.45.
Although small businesses in this sector fell short on key metrics compared to other top industries, they were able to get approved for funding at a relatively high rate—likely due to the fact that these businesses gravitated toward short-term lines of credit, and the home improvement industry, at large, is projected to see increased consumer spending. In addition, the amount of funding these businesses requested was in the bottom three of all 58 industries. As a result, these businesses were able to get approved for smaller amounts of funding.
This quarter, building materials and home furnishers that came to the Fundera platform demonstrated:
Fundera applicants can choose from multiple retail categories when filling out a loan application. Some retailers, such as bookshops and toy stores, don’t fall into specific retail categories. This group of miscellaneous retailers performed third-best this quarter in likelihood of funding. Small businesses operating in this space were able to secure an average funding amount of $51,767, which is 12% higher than the overall average.
Most of these specialized retailers opted for either a short-term loan or a short-term line of credit, but 18% of these retailers secured a medium-term loan. Eighty-three percent of these retailers secured funding to cover working capital expenses, with another one in 10 securing funding for wider growth and expansion plans.
Average annual revenue in this industry was $1.24 million, 42% above the average. Time in business was also 8% above the average, with the majority of businesses operating for eight years or more. These retail business owners also performed well in credit categories, posting personal credit scores 4% above average and business credit scores 8% above average.
When you look at other retail sectors, this group of specialized retailers stands out even more. For example, apparel and fashion retailers reported annual revenues that were 13% below average. Bicycle and sporting goods shops had annual revenues 20% below average.
This quarter, niche retailers that came to the Fundera platform demonstrated:
The strategy and general consulting industry includes business consultants outside of the legal, tax, and creative spaces. These business owners help other businesses with planning, problem solving, and implementation of new policies or solutions. Despite the fact that this industry faces tough competition from outsourcing and the growth of virtual assistants, strategists and general consultants occupy the fourth spot on our list. They secured an average of $64,150 in funding, which is 38% higher than the overall average.
Short-term lines of credit were the most popular financial product for this industry. Twice as many firms secured a line of credit instead of a short-term loan. Eighty-four percent of strategy and general consultancies planned to use that funding for immediate working capital.
The annual revenue of strategy and general consulting businesses came in at $1.03 million, 17% above average. At a 685 average, this industry also reported personal credit scores 3% above average. Strategists and general consultants did even better on business credit, scoring an average of 454, which is 6% above average.
Strategists and general consultants who sought financing through Fundera reported the following for the first quarter of 2019:
The creative and marketing industry, which came in at number five for funding success, includes a range of different types of businesses. Examples include boutique marketing agencies, freelance artists, copywriters, and social media consultants. These creative businesses were able to secure an average of $51,029 in funding, which is 10% more than the first quarter average.
Creative and marketing businesses primarily trended toward short-term lines of credit and short-term loans, with a small percentage securing medium-term loans. Nearly a quarter of these businesses (24 percent) secured a loan or line of credit for expansion purposes, and 58% cited working capital as the primary reason.
From a numbers standpoint, this was one of the most interesting industries. Most other businesses posted high revenue numbers and low profit numbers. Creative and marketing showed the reverse pattern. Creative and marketing businesses reported an average annual revenue of $717,244, 18% lower than the overall revenue average, and $194,683 in profit, 44% higher than the overall profit average. Creative businesses are finding ways to give customers what they want, while cutting down on waste and inefficiencies.
Creative and marketing businesses visiting the Fundera platform demonstrated the following in the first quarter of 2019:
This generalized home services category includes home-oriented businesses outside of the interior design, landscaping, and home repair spaces. Examples include pet sitting, home tutoring, and moving services. This industry came in sixth place in our quarterly lending ranking,
Home service businesses secured an average funding amount of $58,348, 26% more than the average of all small businesses that secured funding through Fundera between January 2019 and March 2019. Among home service businesses, 42% secured a short-term loan, 32% secured a short-term line of credit, 13% secured a medium-term line of credit, 6% secured a medium-term loan, and 6% secured an SBA loan. Working capital was the number one purpose for home service businesses seeking a financial product through Fundera.
This industry reported average annual revenues of $1.2 million, 37% above average. The other standout category for this industry was personal credit. Home service business owners had a 693 personal credit score on average, placing it 5% above average. This was the highest personal credit average among the top 10 industries after software development.
The success of home services in getting funding demonstrates the strength of the gig sector. Many people now find home service professionals through gig economy sites like Upwork and Guru. Once individuals find someone they trust, they’re unlikely to move to a new provider. So, it shouldn’t come as a surprise that the average home service business was 8.36 years old, 13% above the overall average.
Compared to the overall average, home service businesses visiting Fundera reported the following:
Other health services fell into the seventh spot. This industry encompasses businesses in the health services space that are not physician or dentist offices. Examples include medical billing firms, physical therapy offices, and nutritionists.
These health businesses secured an average of $66,907 in funding, 44% more than the overall average. Among health service businesses, 46% secured a short-term loan, 25% opted for a larger medium-term loan, and another 18% secured a short-term line of credit. Only 9% of small businesses in this sector secured a medium-term line of credit. 67% of health service companies cited working capital as their primary reason for seeking a loan, and 13% cited expansion.
Number of employees was a standout area for health services. With an average of 9.5 employees, health service companies have the highest number of employees among all 58 industries and 45% more employees than the overall average. These businesses also performed well on revenue, bringing home an average of $1.05 million, 20% above the average.
Here’s what health service businesses reported during Fundera’s first quarter:
Construction and materials businesses follow in the eight spot. These are capital-intensive businesses that are involved in residential and commercial construction. These small businesses were able to secure an average of $57,017 in funding through Fundera, which is 23% more than the overall average.
By and large, construction and materials firms leaned toward short-term loans, with 62% of businesses securing one compared to 30% securing a short-term line of credit instead. Seventy-one percent cited working capital as their primary purpose for funding, with 12% citing expansion.
Businesses in this industry generally work on only a few jobs each year, but each one pays well. As a result, these businesses reported annual revenue of $1.1 million, 25% above the average. Higher labor and equipment expenses resulted in lower levels of profit, 30% below the average. This industry is slightly older and larger than the average business that applied to Fundera. At 8.21 years old and with an average of seven employees, these numbers are 10% and 6% above average respectively.
Compared to all small business categories from 2019’s first quarter, construction and materials small businesses reported:
With consumers living a more health-centric lifestyle these days, it shouldn’t come as a surprise that gyms and fitness clubs are ninth on the list for funding success. Either opting for a short-term line of credit or loan, three out of four gyms and fitness clubs planned to use their newly sourced funding as working capital. Twenty-one percent focused on expansion of their locations.
Although gyms and fitness clubs obtained funding quite successfully, they didn’t receive large amounts of funding. On average, gyms and fitness clubs secured $29,296 in funding through Fundera in the first quarter of 2019—37% below the overall average.
The annual revenue for gyms and fitness clubs was $931,692, which is 6% above average. Profit was 34% below average, coming in at $89,588. Business credit was likely the factor that was responsible for putting gyms and fitness clubs in the top 10. The average business credit score of gym and fitness club owners was 501, 17% above the average. This industry had the second-highest average business credit score among all 58 industries.
Member retention is a perennial challenge for the fitness industry. According to the International Health, Racquet, and Sportsclub Association (IHRSA), the average fitness club sheds 28.6% of their customers every year. At the same time, the number of fitness clubs and gyms has risen each year, giving gyms more competition to deal with. Despite these challenges, gyms and fitness clubs that applied to Fundera have been in business for an average of 8.18 years, 10% higher than the average. They also employ nearly seven employees, which is 4% more than the average.
Compared to other businesses from the first quarter, gyms and fitness clubs visiting Fundera reported:
Software development rounds out our list of the top 10 industries to get a loan this quarter. These are businesses that create, update, and test software programs. When you think of software development, you might think of engineers working at Google, Facebook, and other big companies. But smaller software development firms are much more common than you might think. In fact, the software industry was number one in our ranking of the best freelance gigs and side hustles of 2019.
Small businesses specializing in software development secured, on average, $108,477 in funding—which is 134% higher than the overall average and by far the small business industry between January 2019 to March 2019 that secured the most in funding.
Software development firms secured more short-term loans (38%) than any other financial product, but medium-term loans were also a popular choice (31%). Medium-term loans tend to provide larger loan amounts, so these are popular with businesses that need more funding. Three out of four firms designated working capital as the primary purpose for securing a loan, with 13% citing expansion of their business.
The software firms that applied for a loan at Fundera posted an average annual revenue of $1.05 million and an average annual profit of $106,302. That’s 19% higher-than-average annual revenue and 22% lower-than-average profit. On average, software developers reported personal credit scores of 697, which was 5% above average, and business credit scores of 488, which was 14% above average. Software businesses had 6.26 employees, which is 5% below average. That shouldn’t be surprising since software businesses are more research intensive and have less overhead.
Compared to other businesses from the first quarter, software development businesses reported:
Here’s the full ranking of the 58 industries that applied for funding on Fundera during the first quarter of 2019. Industries are ranked in order of their success in receiving funding:
In order to put together our state of small business lending report, we looked at data from Fundera’s loan platform between Jan. 1, 2019, and March 31, 2019. Over 6,500 businesses in 58 industries applied for financing on Fundera during the quarter.
When applying for financing on Fundera, small business owners must self-select an industry, loan purpose, and estimated funding amount. They also need to self-report average annual revenue and average profit. For each metric, we compared the industry average to Fundera’s overall average. This let us evaluate how far above or below average each industry fell on different metrics. We ranked the industries based on win rate, the percentage of businesses that successfully obtained funding in each industry out of the businesses that applied in each industry.
Fundera pulls Experian FICO 8 personal credit scores on all verified business loan applicants. These personal credit scores fall on a 300 to 850 range, with a higher number meaning better credit. Fundera applicants also have the option to sign up for credit monitoring. Credit monitoring includes access to a personal credit score and an Equifax business credit risk score. This business score falls on a 101 to 660 range, with a higher number meaning better credit. Approximately 25% of all first quarter applicants signed up for business credit monitoring, allowing us to generate approximate business credit score averages for each industry.
The first quarter of 2019 was a good one for small businesses, particularly those in the 10 industries mentioned above. These 10 industries were most likely to fund due to a combination of high revenue, good personal and business credit scores, and business maturity. Companies in these industries were able to meet their business goals with short-term financing.
These findings can help small businesses that are yet to get off the ground or that are in the very early stages of development. The industry your company belongs to can shape your success, but there are outliers in every sector. Fundamentals like revenue and credit score matter most.