Every year, the Federal Reserve surveys thousands of small business owners about how they borrow money, who they borrow from, and how it goes. It's one of the most comprehensive datasets on small business financing in the country. This month, the Fed released its latest chartbook series from the 2025 survey - and there's a number in it worth stopping on.

60% of small businesses that got a loan from an online lender said the cost was higher than they expected.

Not higher than comparable loans. Higher than they were told to expect. Three in five borrowers felt surprised by what they actually paid.

Why Online Lenders Are Growing Anyway

Online lenders - platforms like Kabbage, Funding Circle, BlueVine, OnDeck, and dozens of others - have seen their share of small business applications grow for five consecutive years, according to the Federal Reserve's survey data.

The reason isn't that they're cheap. It's that they're available.

When a small business needs capital and a traditional bank says no - or says yes in 90 days - an online lender can approve and fund in 24 to 72 hours. For a business owner managing cash flow in real time, speed has a value that doesn't show up in an interest rate comparison.

Online lenders also say yes more often. Banks have tightened their lending criteria over the past several years, particularly for businesses under $1 million in annual revenue. The small business that walks into a bank with two years of tax returns and needs $75,000 for equipment often doesn't qualify. The same business goes to an online lender and gets funded the next day - at a rate that might be two or three times higher.

That's the trade. Many small business owners are making it with full awareness. The problem is that a significant portion aren't getting full awareness up front.

The Satisfaction Gap

The Federal Reserve's Small Business Credit Survey has consistently tracked satisfaction across lender types. Across every survey year, online lenders score the lowest on borrower satisfaction compared to small banks, large banks, and credit unions.

The core complaints are consistent:

• Interest rates higher than expected
• Repayment terms that were harder to manage than anticipated
• Fees that were not clearly communicated before signing

What makes the 60% figure notable is that it's not satisfaction compared to other lenders - it's satisfaction compared to the borrower's own expectations before they signed. The experience of borrowing wasn't worse than expected because the market is bad. It was worse than expected because the terms weren't clearly communicated.

That's a disclosure problem.

What This Means Before You Apply

None of this means online lenders are a bad choice. For some businesses - especially those that can't wait 90 days for a bank decision, or can't qualify for a bank loan at all - an online lender may be the only real option. The cost difference is real, but so is the access difference.

What the Fed data suggests is that borrowers are going in with incomplete information. Here's what to nail down before signing anything:

Annual Percentage Rate, not just the factor rate. Some online lenders quote "factor rates" like 1.3x, which sounds manageable but can translate to an APR of 40-80% depending on the repayment schedule. Ask for the APR specifically.

Total repayment amount. Ask how much you will pay back in total - not just the monthly payment. On a 12-month loan with a high factor rate, the total can be significantly more than the loan amount.

Prepayment terms. Some online loans assess the full fee regardless of whether you pay early. Others allow prepayment without penalty. If you expect cash flow to improve and want to pay it off early, this matters.

The origination fee. Many online loans carry origination fees of 1-5% that are deducted from the loan amount before you receive it. If you borrow $100,000 with a 3% origination fee, you receive $97,000 but repay $100,000 (plus interest).

The CFPB's Loan Estimate tool and the SBA's lender comparison resources both offer frameworks for comparing loan costs across types. They take 15 minutes to use and can save you from being in the 60%.

The Broader Picture

The growth of online lending in the small business market is a real shift in how capital flows. Traditional banks are not filling the gap for loans under $250,000 - a segment that represents the majority of what small businesses actually need. Online lenders are filling it.

That's not going away. If anything, it will accelerate as more businesses fall outside traditional bank eligibility, and as online lenders use AI to underwrite faster and at more granular levels of risk.

The Federal Reserve data is not an indictment of online lending. It's a map of where borrowers are going in without enough information. The businesses that use online lenders well know exactly what they're paying and why the speed or availability is worth it. The businesses that struggle are the ones who didn't read the fine print carefully enough before the cash hit their account.

Source: Federal Reserve 2026 Firms in Focus Chartbooks - released April 2, 2026, based on the 2025 Small Business Credit Survey