October 23, 2014

Increased Approvals of Small Business Loans by Big Banks Are a Good Sign for Entrepreneurs

Lending at big banks (classified as banks with $10B+ in assets) are rising, thanks to increased activity by mid-sized institutions within this category.  This is welcome, positive news for small business owners.

loan approval

The July 2012 Biz2Credit Small Business Lending Index, a monthly analysis of 1,000 loan applications on my company’s platform, revealed that approvals by big banks improved for the second consecutive month to 11.3% from 11.1% in June 2012.  This figure represents the highest approval rate by big banks since March 2012; a positive indication that small business lending is gaining momentum among large and mid-sized banks.

Conversely, small bank lending dropped slightly to 47.4% in July 2012 from 47.5% in June 2012.   However, this number is still up two and a half percentage points from 44.9% last July.

We are continuing to see more mid-sized banks, such as Sovereign, reemerge in the market. Big banks, which have been under pressure to increase small business lending, are continuing to close more deals.

Meanwhile, the July 2012 loan approval rate of credit unions dipped to 54.6%, down from 55.8% in June.  The figure represents the lowest approval rate for credit unions since August 2011, when the figure stood at 54.2%. Some credit unions have reported that they had reached their lending limit, which currently is 12.25% of total assets.

The slowdown is due, in part, because some credit unions reportedly ‘capped out’, while others are being more cautious in their lending because of greater scrutiny by the SBA.  The Credit Union Small Business Jobs Bill proposed by Senator Mark Udall (D-CO) seeks to raise the credit union business lending cap to 27.5% of total assets from the current figure of 12.25%.

Although credit union lending dropped, alternative lenders — accounts receivable financers, merchant cash advance lenders, Community Development Financial Institutions (CDFI), micro lenders, and others — are picking up the slack.  In July, alternative lenders approved 64.1% of loan requests, up from 62.9% in June and nearly 12 percentage points higher than a year ago.  The 64.1% approval rate was the highest figure since the Biz2Credit Small Business Lending Index began in 2011.

While credit union approvals slowed, alternative lenders picked up the slack with their highest approval rating since we began measuring the category.  Alternative lenders should continue to reap the benefits of capped out credit unions.

Although it is not yet time to pronounce that the credit crunch is over, things have certainly improved for entrepreneurs in search of capital this year.

Loan Approval Photo via Shutterstock

3 Comments ▼

Rohit Arora


Rohit Arora Rohit Arora, CEO and Co-founder of Biz2Credit, is one of the country's leading experts in small business finance. Since its founding in 2007, Biz2Credit has arranged $800M in small business loans and has helped thousands of entrepreneurs. Rohit was named Crain's NY Business "Entrepreneur of the Year 2011."

3 Reactions

  1. Thanks for the post, we applied a couple years ago for a business loan and they would only give our inventory pennies on the dollar for collateral. That was at a local credit union. Maybe if we need a loan in the future we may try an alternate lender like mentioned in your article.

  2. I have been a small business guy for a long time. I have created and sold a several companies over the years, and small business loans always seem like something people like to talk about, but not actually a viable options.

    At least in my experience, it takes a while for a small business to get off the ground. I am not saying it usually takes a long time to get into the black, but it takes a while to get much past break even. Sure the up front cash of a loan is great and all, but now you have this payment (read extra expense) looming out there, usually due in less time then you need.

    Also, these loans are usually really only available for established people or people who already have cashflow. Not to those who are just starting up and need available operating capital.

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