Average Small Business Debt (2024 Statistics)

The truth is most businesses, regardless of their size, have some debt.

It’s often necessary to borrow money to get a business started or to fund the purchase of essential equipment. 

Debt is particularly common in small businesses which need help getting started.

As it can take 2-3 years to become profitable, many small business owners need finance to ensure their business will survive that length of time. 

However, there is such a thing as too much debt.

It’s time to take a look at the average small business debt and associated facts.

Key Statistics

  • 17% of small businesses have debt levels between $100,000 and $250,000
  • 26% of small US businesses have no debt
  • 43% of small businesses start their business with personal savings
  • 38% of small business owners underestimate start up costs
  • 43% of businesses don’t have good enough credit scores for traditional lending
  • 32% of small business owners have an emergency fund
  • Small business debt has risen by 9.1% since 2020
  • The average small business debt is $195,000
  • 32% of business owners borrowed to clear old debt
  • Businesses which secure loans when struggling are likely to struggle for years
  • The approval rate for merchant cash advances is 85%
  • 56% of small business loan applications were for expansion

Top Average Small Business Debt Statistics

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1. 17% Of Small Businesses Have Debt Levels Between $100,000 And $250,000

According to the latest survey by Statista, roughly 17% of small businesses have debts between $100,000 and $250,000.

The report doesn’t highlight details of the small businesses, making it difficult to identify whether these are established businesses or new enterprises. 

Businesses can create debt to help deal with specific expenditures or to help manage cash flow, payroll, and even supplier credit.

Of course, businesses which have large amounts of debt to manage cash flow and day-to-day expenditures may have taken on too much debt.

They should assess their revenue and profitability versus the amount it takes to service these debts. 

Naturally, deciding how much small business debt is too much is an individual decision.

Only the business knows why the funds have been borrowed and how they expect to service them. 

However, the general rule is that debts over 30% of your business capital are excessive. 


2. 26% Of Small US Businesses Have No Debt

Debt is always a concern. However, the good news is that the majority of small businesses in the US are working to keep debt levels to a minimum.

According to the latest Statista reports, 26% of small businesses in 2021 have no debt.

That’s better than 2020 when only 21% of businesses had no debt. 

Impressively, 11% of small businesses have debts of under $25,000.

That figure hasn’t changed from 2020 to 2021.

The percentage of small businesses with debts between $25,000 and $50,000 has increased.

In 2020 it was 10%, in 2021 it was 11%.

However, debts of $50,000 to $100,000 have dropped from 14% of businesses in 2020 to 12% in 2021.

The same is true for debts between $100,000 and $250,000, down from 20% to 17% of small businesses.

Interestingly, 16% of small businesses owe between $250,000 and $1 million.

That percentage hasn’t changed between 2020 and 2021.

But, the percentage of businesses with over $1 million in debt has reduced, from 8% to 7%.

In short, despite the global pandemic, US small business borrowing appears to be reducing. 


3. 43% Of Small Businesses Start Their Business With Personal Savings

Starting a business almost always requires some funding.

You’ll need materials to create products, funds to cover supplier bills, internet costs, delivery, and even a wage for yourself while you get the business up and running. 

These costs are the reasons many startups get into debt. The owners have great ideas but need more funds to start the business.

According to the latest research, less than half of all business owners have enough funds to start a business with their personal savings.

That means money they’ve been saving as well as retirement funds and even getting friends and family to invest. 

In many cases, this isn’t enough.

Surveys show that 34% of small business owners have used personal credit cards to get their business started. 

A further 31% released funds from their property and 35% borrowed funds from family members. 

In most cases, it’s a mixture of funding. 


4. 38% Of Small Business Owners Underestimate Start Up Costs

There are several obvious costs when starting a business, such as creating a website, buying products or materials, or even securing the right premises. 

However, there’s also an array of invisible costs for the uninitiated.

This includes insurance, the cost of marketing, and even living costs. 

It’s the invisible costs that often trip up new business owners.

In fact, 38% of small business owners admit they underestimated the cost of starting a business.

The result is, that businesses are started without adequate funding and owners have to find finance to keep their dreams afloat.

Roughly 30% of respondents stated they were unable to save for retirement as everything they had was being reinvested in the business. 


5. 43% Of Businesses Don’t Have Good Enough Credit Scores For Traditional Lending

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Small business owners don’t generally give up at the first hurdle.

Unfortunately, if they have underestimated the cost of starting and running their business, they’ll need funding to help cover the shortfall. 

The obvious route is to approach your bank.

However, a recent survey found that 43% of small businesses don’t have a good enough credit rating to qualify for traditional lending solutions. 

These business owners are left looking for finance partners willing to invest in their business, or they go to less-reputable lenders.

That means they are paying significantly higher rates for the funds they need. 

This can place a greater burden on the business when it least needs it.


6. 32% Of Small Business Owners Have An Emergency Fund

Individuals should have an emergency fund to help them deal with unexpected expenses.

It’s the same principle for businesses.

After all, you never know when revenue will slow.

Of course, most small businesses utilize all their funds to keep the business going, they generally struggle to put anything aside for an emergency. 

That’s why the latest figures show just 32% of small businesses have an emergency fund.

The other 68% of small businesses will be reliant on adjusting payments or borrowing funds to deal with an emergency. 

Some business owners have even reported taking funds from their retirement savings or earning money in a regular job to help the business cover its bills.

It’s difficult to sustain this in the long term. 

It’s the reason why 31% of business owners are uncertain about how to keep business and personal expenses separate. 


7. Small Business Debt Has Risen By 9.1% Since 2020

A report by the Federal Reserve looked at debt levels in 2021 compared to 2020.

Unsurprisingly, the pandemic affected the level of borrowing.

According to the report, debt levels by small businesses rose by 9.1% in the space of a year.

To put this in perspective, it’s roughly the equivalent of $425 billion of additional debt. 

The total debt owed by small business owners in 2021 is $7.7 trillion. 

It’s interesting to note that the total consumer debt in the US, as of 2022, is $16.38 trillion.

It’s impossible to say how much of this personal debt is related to small business owners trying to keep their businesses going. 

(The Federal Reserve)

8. Average Small Business Debt Is $195,000

Several organizations have conducted research into levels of business debt and they all conclude that the average small business debt is $195,000.

Naturally, this is an average, some small businesses have no debt, and others owe over a million. 

The figure can seem daunting, especially if your business owes this much or more.

However, it is possible to service this debt and even eliminate it in the medium to long term. 

You simply need to focus on increasing the income of the business.

This will improve cash flow, reducing the need to borrow funds, and allowing you to pay off existing commitments faster. 

(Zippia, Business.com)

9. 32% Of Business Owners Borrowed To Clear Old Debt

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The pandemic took a toll on many businesses, forcing them to take drastic measures to survive.

One thing that nearly a third of small businesses did was to borrow additional funds. 

According to surveys, 32% of small businesses borrowed funds to refinance their business or clear older debts.

Consolidation often helps a business to keep track of debts and prioritize them.

Refinancing can also secure better interest rates which reduces the amount of funds the business has to pay monthly. 

It’s worth noting that only 30% of small business owners were looking to refinance in 2019.

The additional 2% is likely a result of the global pandemic placing additional pressure on many small businesses. 

It’s estimated that the pandemic has caused more businesses to have debt. Surveys show that 79% of small businesses which employ people have debt in 2021.

In 2016, the figure was 71%.

Interestingly, while 54% of businesses admit to starting up with debt, around 66% of those with debt said it was easy to secure finance. 


10. Businesses Which Secure Loans When Struggling Are Likely To Struggle For Years

There is little doubt that a string of economic and geopolitical events has made trading as a small business significantly harder than it used to be. 

For example, the housing bubble burst in 2008, the stock markets collapsed in 2015, and the pandemic hit in 2020. 

For many businesses, borrowing was the only solution to ensure they survived the crisis.

This is what drove the increase in borrowing. 

However, research shows that businesses which take finance when they are struggling, as opposed to helping with expansion, will still be struggling financially in ten years. 

The business will consistently be trying to pay off loans without achieving the success which would otherwise be possible. 

Small business owners should learn the lesson today.

Building an emergency fund to handle emergencies is better for the ability of the business to flourish.


11. The Approval Rate For Merchant Cash Advances Is 85%

Merchant cash advances are a  great way to borrow funds as the eligibility rates are generally low. 

The principal is simple, you borrow funds against future receipts and the merchant deducts the agreed amount from your merchant receipts before they reach your account. 

In other words, providing you’re taking money via your merchant account it’s very difficult for you to avoid paying the loan.

That’s why this type of lending has such a high approval rating. 

In contrast, the approval rating for institutional lenders is 66%, still impressive.

However, auto and equipment loans have an 80% approval rate and business credit lines achieve a 73% success rate.

It’s worth noting, that many small businesses will apply for merchant cash advances because their traditional loan requests have come up short.

As many as 14% of small businesses don’t receive as much funding as they request. 

Many small business owners release home equity to help their business, these types of applications generally have a 70% approval rate while mortgages have a 69% approval rate. 


12. 56% Of Small Business Loan Applications Were For Expansion

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Mention small business debt and most people assume the business is in trouble financially.

However, according to records, 56% of small business loan applications were for funding to expand the business. 

This is usually a result of the company and its products doing well, or sometimes the desire to buy out a competitor. 

Small business loans are also frequently applied for to purchase additional business equipment.

That’s items which will allow the business to grow. 

It should be noted that 57% of small business loan applications were for $100,000 or less, and just 8% of businesses were looking to borrow over $1 million. 

Surprisingly, 25% of business loan applications are for under $25,000.


Summing Up

The average small business debt level is close to $200,000.

However, this is inflated by the small number of requests for large sums, namely over $1 million. 

What the above statistics actually show us is that small business owners are surprisingly responsible, borrowing only what they need to succeed. 

In many cases, the small business debt is to help the business grow and flourish.

Only businesses which have struggled to prepare for emergencies have taken finance and are still struggling to repay it years later. 

The good news is that any small business can repay their business loans, they simply need to focus on improving revenue while keeping costs down. 

The secret as a small business owner is to look at the figures before deciding whether you need a loan and how much you should be requesting.

The odds of getting some of the funding are in your favor, just make sure you know what you want, why you want it, and how you’re going to repay it. 


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