When a business owner needs money, the search usually starts in one of two places: the bank they already use, or a search engine. Neither is built to answer the question the owner actually has, which is "who will approve my business, and what will it really cost?" This research piece looks at how owners choose where to apply, why business financing is unusually hard to compare, and what the evidence says good funding guidance should do.
It is written for the people who advise business owners about money: accountants, bookkeepers, brokers, consultants and the software companies that serve small businesses.
How do business owners decide where to apply?
Mostly by relationship, speed and expected approval, and much less by price. The Federal Reserve Banks' 2026 Report on Employer Firms, based on a survey of 6,525 small employer firms fielded from September to November 2025, asked loan, line of credit and cash advance applicants why they applied where they did (Federal Reserve Banks: 2026 Report on Employer Firms).
| Factor in choosing where to apply | Large bank | Small bank | Online lender | Finance company |
|---|---|---|---|---|
| Existing relationship | 62% | 61% | 32% | 31% |
| Chance of being funded | 33% | 37% | 34% | 49% |
| Cost or interest rate | 24% | 31% | 33% | 18% |
| Speed of decision or funding | 28% | 29% | 44% | 64% |
| Recommendation or referral | 20% | 16% | 19% | 11% |
| Denied by other lenders | 11% | 12% | 18% | 28% |
Percent of applicants at each source. Federal Reserve Banks, 2026 Report on Employer Firms.
Two patterns stand out. At banks, the relationship comes first: six in ten applicants cited it. At online lenders and finance companies, speed dominates, and cost or interest rate was cited by no more than a third of applicants at any source. At finance companies, 28% of applicants said they had been denied by other lenders.
The survey is a convenience sample rather than a random one, so the report treats its figures as estimates. The direction is still clear: price comparison is a minority behavior.
Key takeaway: Owners choose lenders the way people choose doctors: by familiarity, referral and urgency. Guidance that only ranks products on price misses how the decision is actually made.
What happens when they apply
Fewer than half get everything they ask for, and outcomes vary sharply by lender type. In the same report, 60% of firms applied for financing in the prior 12 months. Of applicants, 42% received the full amount, 36% received part of it and 22% received nothing.
| Lender type | Fully approved | Partially approved | Denied |
|---|---|---|---|
| Small bank | 57% | 23% | 20% |
| Finance company | 50% | 31% | 19% |
| Credit union | 44% | 26% | 29% |
| Large bank | 43% | 26% | 31% |
| Online lender | 38% | 39% | 23% |
| CDFI | 27% | 39% | 34% |
Outcomes for loan, line of credit and cash advance applicants, 2025 survey.
Among applicants who were not approved for everything they sought, the most common reasons given were that lender requirements were too strict (46%), the business already had too much debt (37%), a low credit score (30%), and insufficient collateral, weak sales, or lenders not funding "businesses like mine" (29% each).
Many owners never apply. Of firms that did not apply, 63% said they did not need financing, 17% said the cost of credit was too high, 10% were debt averse and 7% were discouraged, meaning they expected to be turned down. Among discouraged firms, 63% pointed to weak business financials and 27% said lenders do not approve financing for businesses like theirs.
Those numbers describe a matching problem as much as a credit problem. Strict requirements and "lenders don't fund businesses like mine" are both answers that better information before applying could change.
Why business financing is hard to compare
Federal law does not require a standard price disclosure on business credit. Regulation Z, which implements the Truth in Lending Act, exempts "an extension of credit primarily for a business, commercial or agricultural purpose" (CFPB: 12 CFR 1026.3). A consumer comparing credit cards sees an APR on every offer. A business owner may see an interest rate on one offer, a factor rate on another and a daily payment on a third.
The Federal Reserve Board and the Cleveland Fed documented what that looks like in practice. Their 2019 study, Uncertain Terms, reviewed 10 online small business lenders and ran focus groups with owners (Federal Reserve: Uncertain Terms). Among the findings:
- Lenders typically highlighted their lowest rate, with ranges or averages placed in "footnotes, fine print, or frequently asked questions."
- "Four lenders provide no rates or costs for any of their products."
- Owners chose online lenders mainly for the speed they expected, and "found it challenging to identify interest rates or estimate costs."
- Asked to estimate the cost of one merchant cash advance, participants gave answers "from 10 percent to over 50 percent."
- In a sample disclosure, participants rated the APR "among its most helpful details." The study's own estimates put the equivalent APR of its sample products at roughly 45% to 70%.
A worked example: factor rate versus APR
Take a $50,000 advance with a 1.15 factor rate. The business repays $50,000 × 1.15 = $57,500, so the cost is $7,500, which sounds like 15%. Now suppose the repayment is collected in 126 business-day payments, about six months, of $57,500 / 126 = $456.35 each. Because the balance shrinks every day, the business has the full $50,000 for only a short time. Solving for the rate that makes those payments equal $50,000 and annualizing over 252 business days gives an APR of roughly 57%, by our calculation.
The same advance repaid over twelve months would have a much lower APR, even though the dollar cost is identical. That is why the factor rate alone tells an owner very little. Loanistry's factor rate calculator does this conversion.
What states now require
A growing number of states require commercial financing disclosures, and some now require an APR. The rules differ by state, product and deal size:
- California: Since December 9, 2022, regulations under SB 1235 require providers to disclose the funding amount, an APR calculated for the transaction, the term, prepayment policies and, for products without a monthly payment, an average monthly cost (DFPI: Commercial financing disclosure regulations). A 2026 law, AB 2116, will also require commercial financing brokers to post average and maximum APRs for deals they facilitated, from 2028, according to Morrison Foerster.
- New York: Providers must disclose an estimated APR when they make a specific offer (23 NYCRR Part 600, as published by the Commercial Law League of America). The law does not apply to individual transactions over $2.5 million or to real estate secured financing (NY Financial Services Law § 802).
- Virginia: Sales-based financing providers must disclose the total financing amount, finance charge, total repayment amount, estimated number of payments and whether they pay a broker, and how much (Va. Code Title 6.2, Chapter 22.1). Virginia's list does not include an APR.
- Utah: Providers must register and give disclosures on transactions consummated on or after January 1, 2023 (Utah DFI: Commercial Financing).
- Texas: Providers and brokers of commercial sales-based financing must register with the Office of Consumer Credit Commissioner by December 31, 2026 (Texas OCCC rule adoption).
Federal data collection will not fill the gap soon. The CFPB's revised Section 1071 small business lending data rule, issued May 1, 2026, sets a compliance date of January 1, 2028, excludes merchant cash advances and removes pricing from the data lenders must report, according to Mayer Brown.
What comparison sites measure, and what they don't
Product ratings grade the lender, not the borrower's fit. NerdWallet publishes one of the clearest methodologies in the category. Its small business loan star ratings weight cost at 33%, transparency at 19%, underwriting and loan flexibility at 15%, and credit reporting, application experience and customer service at 11% each. It states that "NerdWallet's business relationships have no impact on our star ratings" (NerdWallet: small-business loan ratings methodology).
Every one of those factors describes the product. None describes whether a two-year-old trucking company with uneven deposits would be approved. That is not a flaw in the methodology; it is a limit of what a ranking can do.
Placement is a separate question from rating. Lendio, a marketplace, says on its own site that compensation from lenders "may impact the placement of financing offers" (Lendio). NerdWallet's annual report says its marketplaces earn primarily through referral fees and partner marketing arrangements (NerdWallet Form 10-K for 2025). A guide can rate fairly and still be paid more for some products than others. Our research on how lending marketplaces make money covers the fee models.
What good funding guidance looks like
Good guidance starts from the business's numbers, prices every offer the same way, and tells the owner how the guide is paid. Each of the traits below answers a specific finding above.
- Eligibility before recommendations. Because "requirements too strict" was the top denial reason (46%), a guide should ask about time in business, revenue, credit, existing debt and industry before naming lenders.
- One price language. Because business credit has no federal APR rule and owners struggle to estimate costs, every offer should be shown as an APR and a total dollar cost, as California and New York now require for covered deals.
- Disclosed incentives. Because placement can follow compensation, a guide should say how it is paid and whether that affects order.
- Breadth across lender types. Because full approval ranged from 27% at CDFIs to 57% at small banks, a guide should consider banks, credit unions, CDFIs, online lenders and finance companies, not one channel.
- Respect for the relationship. Because six in ten bank applicants chose their lender through an existing relationship, good guidance includes checking with the current bank first.
- Help after the match. Among discouraged firms, 63% cited weak business financials and 8% missing documentation. A checklist of business loan documents is part of guidance, not an afterthought.
Satisfaction data points the same way. Among approved applicants, net satisfaction (satisfied minus dissatisfied) was +73 at credit unions, +59 at small banks and +56 at large banks, but +20 at online lenders, where 60% of borrowers said costs were higher than expected. Owners were least happy where pricing was least clear. Our comparison of online lenders and banks walks through those trade-offs.
Key takeaway: The gap in business funding guidance is not a lack of lender lists. It is a lack of fit, comparable pricing and disclosed incentives, and each of those can be fixed with better questions and plainer numbers.
Loanistry is owned by Trulli, which runs a lending platform for brokers, agencies and software companies: trulli.ai.
Sources
- Federal Reserve Banks: 2026 Report on Employer Firms, checked November 2026
- CFPB: Regulation Z, 12 CFR 1026.3 Exempt transactions, checked November 2026
- Federal Reserve Board: Uncertain Terms, What Small Business Borrowers Find When Browsing Online Lender Websites, checked November 2026
- DFPI: Commercial financing disclosure regulations approved to become effective December 9, 2022, checked November 2026
- Morrison Foerster: California Expands the California Financing Law to Include Small Business Commercial Financing, checked November 2026
- Commercial Law League of America: 23 NYCRR Part 600, Commercial Finance Disclosures, checked November 2026
- New York State Senate: Financial Services Law § 802, Exemptions, checked November 2026
- Virginia Code: Title 6.2, Chapter 22.1, Sales-Based Financing, checked November 2026
- Utah Department of Financial Institutions: Commercial Financing, checked November 2026
- Texas OCCC: Commercial sales-based financing rules adoption, checked November 2026
- Mayer Brown: CFPB Issues Final Section 1071 Rule on Small Business Lending Data Collection, May 2026, checked November 2026
- NerdWallet: Ratings Methodology for Small-Business Loans, checked November 2026
- Lendio: Small business loans home page and disclosures, checked November 2026
- NerdWallet: Form 10-K for fiscal year 2025, checked November 2026