The Biz2Credit Small Business Lending Index, a monthly analysis of 1,000 loan applications, found that approval rates of small business financing requests by small banks and non-bank lenders increased to their highest levels of 2011 during December.
The big story in small business lending continues to be the activity of alternative lenders — credit unions, as well as Community Development Financial Institutions (CDFI), micro lenders, and others. They approved 62.2% of the funding requests , a rise from 62% in November. Within the alternative lender category, credit unions became increasingly active in small business lending in 2011. Credit unions granted 57.4% of small business funding requests up from 57% in November. December loan approvals by small banks increased to 47.1%, their highest rate of the year, up from 47% in November.
Optimism is on the rise as the year begins. We have seen a 30% increase in the volume of new loan applications, which is a good sign. Big banks were the only category of lender that dipped at the end of 2011. Approvals by banks with assets between $10- $50 billion fell in December to 9.7%, thereby reversing a three-month upward trend.
Large banks are coming back in the market, albeit cautiously. However, the big banks wanted to shore up their capital base at end of 2011 and thus reduced their outstanding loan portfolio in December. They are continuing to monitor the European financial crisis, as well as the debt battle in Congress. National and international issues impact big banks more than smaller lenders.
2011 Big Bank ($10B+ assets): Approval %, Small Bank Approval %, Credit Union Approval %, Alternative Lenders Approval %:
January: 12.8% - 43.5% - 48.9% - 49.3%
February: 11.9% - 43.9% - 49.1% – 51.6%
March: 11.6% - 44.2% – 48.8% – 51.9%
April: 10.4% – 44.6% – 50.1% – 53.6%
May: 9.8% - 45.0% – 51.2% - 53.8%
June: 8.9% - 42.5% – 52.3% – 54.9%
July: 9.8% - 44.9% – 53.4% – 52.2%
August: 9.4% - 43.8% – 54.2% – 58.0%
September: 9.2% - 45.1% – 55.5% – 61.5%
October: 9.3% - 46.3% – 56.6% – 61.8%
November: 10.0% - 47.0% – 57.0% – 62.0%
December: 9.7% – 47.1% – 57.4% – 62.2%
* Banks with more than $10 billion in assets are classified as “big banks.”
* Credit Unions are considered “alternative lenders.”
* The “alternative lenders” category includes credit unions, Community Development Financial Institutions (CDFI), micro lenders, accounts receivable financers, and others.
The top story in small business lending is the aggressiveness of alternative lenders and continued flip flops on part of big banks in their lending policies to small businesses. Further, we have noticed an increase in startups looking for funding. Startups have an easier time securing capital from smaller banks and alternative lenders. Bigger banks are more stringent and usually seek to fund only businesses that can produce documentation that they have been operating for more than two years. Obviously, a startup cannot do that. So entrepreneurs are going elsewhere for money.
Based on what I am seeing, if you are a small business seeking funding from a bank, my advice is to think small – not big.
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