The way small businesses get loans is shifting fast, and the changes are hitting their bottom lines. A new federal report based on surveys from all 12 Federal Reserve Banks shows that small business owners are moving away from community banks and toward online lenders at a steady pace.
In 2020, only 17% of small-business owners applied for a loan through an online lender. By 2025, that number had grown to 29%. At the same time, the share going to small community banks dropped from 39% to 28% over the same period. The driving force behind this shift isn’t just owner preference. It has roots in how large banks are choosing to deploy their money.
Major banks with more than $100 billion in assets have been increasingly routing their capital toward nondepository financial institutions, rather than lending directly to small businesses. Outstanding loans from U.S. banks to these intermediaries grew from $56 billion in 2010 to $1.32 trillion by late 2025, making it the fastest-growing loan category by a wide margin.
The outcome for small businesses is that they’re more likely to borrow from a private lender that got its money from a bank, passing along multiple layers of profit margin in the process. Online lenders can charge interest rates anywhere from 30% to 99%, compared to 7.5% to 12.5% for traditional bank term loans. More than 60% of small businesses using online lenders said their borrowing costs were higher than expected.
The Cardiff Connection
Cardiff’s Founder, Dean Lyulkin, cut to the heart of the problem in his observation that layered costs, where both the bank and the fund extract a return before the small business ever sees the money, explain why borrowing has become so expensive for operators who may already be working on thin margins. Businesses navigating this environment need to be deliberate about how they access capital, because the most readily available option is often not the most efficient.
That’s precisely the gap Cardiff helps small businesses overcome. Rather than adding cost through intermediaries, Cardiff works directly with small business owners to provide financing that fits their unique situation, helping them avoid the expense and complexity of a lending chain that was never designed with their interests in mind.
