The Federal Reserve Banks released their 2026 Report on Employer Firms this week, and a single statistic on page 17 reveals a fundamental shift in how small businesses approach financing.
When asked why they chose their lender, 64% of businesses using online lenders cited speed of funding as a major factor. For traditional large banks, only 20% of applicants considered speed important.
This dramatic difference highlights a critical reality in small business finance: time has become the most valuable currency.
The Data Behind the Decision
The Small Business Credit Survey, conducted across all 12 Federal Reserve Banks, surveyed 6,525 employer firms between September and November 2025. The findings expose stark differences in what businesses prioritize when seeking capital.
Factors Influencing Lender Choice:
Online Lenders:
Speed of funding: 64%
Chance of being funded: 49%
No collateral required: 44%
Cost or interest rate: 33%
Existing relationship: 29%
Large Banks:
Existing relationship with lender: 61%
Chance of being funded: 37%
Cost or interest rate: 34%
Speed of funding: 20%
Flexibility of product: 17%
Small Banks:
Existing relationship with lender: 62%
Chance of being funded: 49%
Cost or interest rate: 31%
Speed of funding: 28%
The pattern is unmistakable. Bank customers prioritize relationships. Online lender customers prioritize speed of funding.
Perhaps the most revealing finding: despite prioritizing speed, businesses using online lenders face higher costs. The survey found that 60% of online lender borrowers reported actual borrowing costs were higher than expected, compared to 32% for large banks and 37% for small banks.
Yet they still choose speed.
This suggests small business owners are making sophisticated calculations about the true cost of capital, one that includes not just interest rates, but opportunity costs. It is a trade-off that makes sense when you understand the pressures small businesses face daily.
The Operational Reality
The survey's findings align with broader small business challenges documented in the report:
57% of firms cited reaching customers and growing sales as their top operational challenge
73% faced increased costs of goods, services, or wages
42% dealt with tariff-related cost increases
56% sought financing specifically to meet operating expenses
In this environment, waiting weeks for traditional loan approval is not just inconvenient. It can be catastrophic.
Think about it. A retailer who needs inventory before a peak season cannot afford to wait. A contractor facing a time-sensitive opportunity loses the job if they move too slowly. A restaurant replacing critical equipment needs it done now, not next month.
These are not edge cases. They are the daily reality of running a small business.
The Approval Rate Context
The data also reveals important context about approval rates:
Small banks: 57% fully approved
Large banks: 44% fully approved
Online lenders: 31% fully approved
Despite lower approval rates and higher costs, businesses still choose online lenders for one reason: when speed of funding is critical, a fast no is better than a slow maybe.
There is something to be said for knowing where you stand quickly. The uncertainty of waiting weeks for an answer has its own cost, one that does not show up on a balance sheet but affects decision-making every day.
Implications for Small Business Finance
Industry observers note that this data reflects a maturing alternative lending market. Businesses are not choosing online lenders because they are unaware of bank options, explains one small business finance consultant. They are making an informed trade-off: higher cost for faster access.
This trade-off makes sense when viewed through the lens of small business cash flow dynamics. A retailer who needs inventory before a peak season, a contractor facing a time-sensitive opportunity, or a restaurant replacing critical equipment all face costs from delay that often exceed the premium charged by faster lenders.
It is worth noting: this is not about one type of lender being better than another. They serve different needs at different times. A business might use a bank for long-term equipment financing and an online lender for emergency working capital. Both make sense in their context.
The Relationship Gap
The survey reveals another important trend: the share of firms applying at online lenders has increased for five consecutive years, rising from 17% in 2020 to 29% in 2025.
Meanwhile, traditional banks face a relationship gap. With 61% of their applicants citing existing relationships as the primary factor, banks struggle to attract new customers who have not already established connections.
This creates a challenge: as small business banking consolidates and branch networks shrink, how do new businesses build the relationships that bank customers value?
It is a question worth asking. The traditional model of banking relied on personal relationships built over time. But when branches close and everything moves digital, that advantage erodes. Banks will need to figure out their answer to this sooner rather than later.
Looking Forward
The Federal Reserve data suggests small business finance is bifurcating into two distinct markets:
Relationship-based banking for businesses that prioritize cost and have time to navigate traditional processes
Speed-based alternative lending for businesses that prioritize rapid access and accept higher costs
Neither approach is universally superior. Each serves different business needs at different times.
What is clear is that speed of funding has emerged as the defining characteristic of alternative lending and small businesses are voting with their applications.
The trend shows no signs of reversing. As long as small businesses face time-sensitive opportunities and unexpected challenges, the demand for fast funding will remain strong.
And that is not necessarily a bad thing. Competition drives innovation. It forces all lenders, banks and alternative alike, to clarify their value proposition and serve their customers better.
For small business owners, that is a win. More options, clearer trade-offs, and the ability to choose the right tool for the job at hand.
