The Federal Reserve surveys small business finances regularly, and the data reveals how American entrepreneurs actually fund their operations. Understanding these patterns can help you make smarter financing decisions for your own business. Let's break down what the data shows.
Equipment Leasing Remains Popular
Federal Reserve data from 2024 shows that 10% of small firms actively sought equipment leases. This is a significant and stable percentage, indicating that equipment leasing remains a core financing option for capital-intensive businesses. Whether for vehicles, machinery, or technology, leasing provides flexibility and conserves cash.
Equipment leasing is particularly attractive when you need newer technology or equipment but want to avoid the burden of ownership. You get the use of the equipment, and the lessor bears the risk of obsolescence. The downside is that you never build equity in the asset.
Revenue-Based Financing: Stalled Growth
Here's a striking finding: Federal Reserve data showed that 7% of small firms applied for revenue-based financing in 2024—the same rate as 2017. This means that despite significant hype and growth in fintech lending, revenue-based financing hasn't materially expanded as a percentage of small business financing over the past seven years.
What does this mean? While platforms like Enova, Square, and others have grown originations, they're capturing a slice of a fixed-size pie rather than expanding the overall pie. Most businesses still prefer traditional term loans with fixed payment schedules, not revenue-based models with variable payments tied to sales.
Factoring Is Declining
Perhaps most interesting is the data on invoice factoring. Federal Reserve surveys show declining usage of factoring among small firms. This suggests a few things: either businesses are finding better alternatives (like short-term working capital loans), or factoring's high cost is pushing businesses toward other options.
Factoring remains a niche product for businesses with specific needs (rapid cash conversion, inability to get traditional credit). But it's not growing as a segment. If you're considering factoring, understand that you're paying for speed and convenience—factoring is expensive compared to traditional loans.
SBA Loans: The Stable Player
While alternative financing captures attention, traditional SBA loans continue to fund small business growth reliably. Ready Capital reported $343 million in SBA loan originations in Q1 2025 alone—showing that the government-backed lending program remains a major source of capital for small businesses.
SBA loans offer advantages that alternative lenders can't match: longer terms (up to 10 years), lower rates, and flexible underwriting that considers business potential beyond just recent credit history. If you're building a sustainable business and can wait 2-4 weeks for approval, SBA loans often offer the best economics.
What This Data Really Means for You
The Federal Reserve data suggests several truths about small business financing:
- Diversity matters: No single financing product dominates. Successful businesses use multiple types of financing—term loans, lines of credit, equipment leases, sometimes working capital.
- Traditional lending is still primary: Despite fintech growth, most businesses still use traditional loans and lines of credit. This is what works.
- Alternative financing is complementary: Revenue-based financing, factoring, and other alternatives fill specific needs but aren't replacements for traditional debt.
- Cost matters: The declining use of factoring suggests that businesses are price-sensitive and will choose cheaper alternatives when available.
When evaluating financing options, look at total cost (interest rate, fees, term length), not just monthly payment. A slightly higher rate with a longer term can be cheaper overall than a high-cost short-term product.
Industry Leadership Changes
Leadership changes at major lenders also signal market dynamics. Libertas Funding appointed new leadership in 2025, suggesting strategic shifts in how some lenders approach the market. These changes often precede product innovations or market strategy changes.
For borrowers, leadership transitions at lenders can mean opportunities. New leaders sometimes bring fresh approaches, better customer service, or improved products. Conversely, sometimes they signal exits from certain markets or product lines.
The Bottom Line
Federal Reserve data shows that small business financing is diverse, with no single product dominating. Traditional term loans, lines of credit, and SBA loans remain the backbone of small business finance. Alternative products like revenue-based financing and factoring serve specific niches but haven't displaced traditional options.
The best financing strategy for your business likely involves multiple sources. Start with SBA loans or traditional term loans for sustainable growth capital. Layer in lines of credit for operational flexibility. Consider equipment leasing for specific assets. Use alternatives only when they clearly solve a problem traditional financing can't address.