Challenges in the business landscape and the current economic outlook are fueling demand for small business lending. Banks and financial institutions are in a unique position to meet that demand but don’t always have the infrastructure to meet a borrower’s needs.  

Because of that, banks are missing out on opportunities, while lenders utilizing financial technology are providing a solution to business owners’ problems. In this guide, we cover the small business landscape and trends and opportunities in lending in 2025.  

Small Business Landscape

The small business landscape can be summed up in three words: creation, demand, and uncertainty.  

Census data recently reported that the creation of new businesses is on the rise. As of February 2025, business applications increased 7.8% from January 2025, while projected business formations increased 10.2% during the same period.  

While new businesses continue to pop up, existing businesses have a high demand for small business financing. In 2024, the Small Business Administration (SBA) supported 103,000 financings to small businesses, according to the SBA 2024 Capital Impact Report. This represents a 7% spike from the year before, and the highest level since 2008.  

Despite several positive data sets, small business owners are becoming less optimistic and more uncertain in the current economic climate. The National Federation of Independent Business (NFIB) Small Business Optimism Index fell in February, remaining higher than average for the fourth consecutive month. Simultaneously the Uncertainty Index increased and reached the second-highest reading ever recorded.  

Economic Outlook for Small Businesses  

The palpable uncertainty can be attributed to a few factors. The NFIB report notes that 16% of owners reported that inflation was the single most important problem affecting their business.  

Tariffs are also rattling the nerves of business owners, who report that it could negatively impact their business. Additionally, the interest rate environment is also uncertain. The Federal Reserve is likely to keep rates steady for now. 

These macroeconomic factors can influence loan demand and risk assessment. As the SBA data suggests, loan demand is currently high. But high interest rates and the impact of tariffs could affect borrowers’ cash flow and loan repayment.  

What’s clear is that the current environment can be tough on both small businesses and the lending institutions supporting them. However, the future of small business lending shows numerous trends and opportunities in 2025.  

AI-Driven Automation  

Digital transformation and the power of artificial intelligence are shaking up small business lending. Using AI underwriting, lenders can process a massive number of applications and review alternative data sets as part of their risk assessment. This can speed up the process and automate loan approvals or rejections.  

Additionally, this can support business owners as AI can go beyond just credit scores and review borrowers’ financial health in other ways. AI can also detect instances of fraud, errors, or any potential discrepancies.  

Embedded Finance  

Embedded finance is changing how business owners access financing products. Instead of going to a bank or lender directly, they can access financing opportunities on non-finance platforms they’re already using.  

Whether it’s their accounting software or an e-commerce platform, businesses have integrated lending opportunities inside the tools they use for day-to-day operations

The Rise of Alternative Lenders  

Banks and credit unions play a major role in small business lending. But alternative and online lenders are taking up a greater share of the marketplace. Banks are also taking note of some of the appeal of fintech lending platforms.  

According to the 2024 FDIC Small Business Lending Survey, one-third of banks believe that FinTechs have a competitive advantage when it comes to lending flexibility.  

Alternative and online lenders fill a gap in the market as they provide fast service and a digital experience. Instead of waiting weeks to hear back about loan approval, it could be a matter of days. These lenders focus on what’s important to borrowers.  

What’s Important to Borrowers  

The 2024 FDIC Small Business Lending Survey asked banks to assess what small business borrowers value and rate certain practices as high, moderate, or low importance. It’s no surprise that many of the practices that small business borrowers value align with the latest financial technology lending trends.  

Here you can see the percentage of banks that report these areas are of “high importance.”  

  • Speed of service (93%) 
  • Lending flexibility (82%) 
  • Convenience (79%) 
  • Customer-facing technology (49%) 

Alternative and online lenders have these factors built into their operations, making it an appealing alternative to going to a bank and waiting.  

New Opportunities for Banks and Financial Institutions  

Many banks are behind the curve when it comes to utilizing the latest technology to process loan applications and attract borrowers. The FDIC survey notes that 40% of banks have some steps of the loan process online, while only 6% have completely online loan applications.  

Only 25% of banks accept formal loan applications through an online portal, according to the survey. Additionally, only 23% of banks accept supporting documentation online.  

When it comes to loan approval, banks put another hurdle in front of applicants, with only 13% of banks capable of having borrowers sign documents online for an approved loan.  

It’s clear that banks understand the expectation for certain services and features to be online. FDIC survey data shows that a large majority of banks offer mobile apps (94%), while 88% offer remote deposit capture. While these features were innovative at some point, now they might be expected. 

Similarly, while many banks have yet to fully adopt online processes for loan applications, at some point in the future, it will be the norm. In 2025, banks have a unique opportunity to be at the forefront of small business lending.  

Using the Biz2X lending platform, banks and financial institutions can capitalize on these trends and be a part of the future.