September 27, 2016

Small Business Loans Hit 19.4 Percent, a Record High at Big Banks


Biz2credit april index graphic

In March, it seemed like smaller banks were the place to go for small business loans. But, oh, what a difference a month makes!

Numbers for April collected in the Biz2Credit Small Business Lending Index show trends heading in almost the opposite direction.

The index is a monthly analysis of 1000 loan applications on Biz2Credit.com. After dropping to 18.8 percent in March, small business loan approvals at big banks rebounded to 19.4 percent, a record high for the index.

In a prepared statement, Biz2Credit CEO Rohit Arora, a small business lending expert, suggested several reason for the turnaround:

“In April, small business owners submit their tax filings, and banks use that data in making their lending decisions. The economy is steadily improving, and established businesses are returning to the credit marketplace. They are able to get money from big banks that offer attractive rates. This is a very strong trend.”

But not only were big banks — those with $10 billion or more in assets — lending more in April. Others institutions, like small banks, seemed to be lending less.

Over the same period,  small business loan approvals at small banks and credit unions, two traditionally good places for small businesses to find financing, both dropped after rising in March.

In April, small business loan approvals from small banks fell to 51.1 percent from 51.6 percent the previous month. Meanwhile, small business loans approved at credit unions fell to 43.5 percent, their lowest rate in three years.

The reversal was not a complete surprise given better economic conditions and the differences in how the different lending institutions operate. Arora observes:

“There was a lot of pent up demand in the marketplace. Retailers are buying inventory, and restaurants are upgrading their outdoor seating in preparation for the summer. Big banks make speedier decisions on non-SBA loans, which take a long time to process. That is a major reason for the jump in approval rates by big banks.”

Meanwhile, the increased availability of bank loans continued to dampen demand for alternative lending like merchant advances. Alternative lending continued to drop from 63.6 percent in March to 63.5 percent in April.

At the same time, another group, institutional lenders like credit funds and insurance companies, saw an increase in funds extended to small businesses from 58.1 percent in March to 58.3 percent in April.

Arora explains:

“Institutional Investors are taking away market share from alternative lenders. They are gathering momentum as a category of small business lender as company owners borrow larger sums of money at cheaper interest rates.”

On Wednesday, May 14 at 3:00 PM EDT, Biz2Credit and Small Business Trends will host a free webinar, Top U.S. Cities for Small Business Growth. The Webinar is being offered as part of National Small Business Week. Participants will discuss the best parts of the country to start and expand a business. Other topics will include best sources of capital in 2014, and growth strategies for CPAs and their clients.

Image: Biz2Credit

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Shawn Hessinger - Editor


Shawn Hessinger Shawn Hessinger is the Executive Editor for Small Business Trends. A professional journalist with more than a decade of experience in the traditional newspaper business, he has another 10 years of experience in digital media for trade publications and news sites. Shawn has served as a beat reporter, columnist, editorial writer, bureau chief and eventually managing editor with responsibility for nine weekly newspapers, the Berks Mont Newspapers.

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6 Reactions

  1. Aira Bongco

    Isn’t that a good thing? It seems that the bigger banks are now granting more opportunities to small business owners. While small businesses are generally a hit and miss, it is still better to open more opportunities so as to open more “hits” to future small business owners.

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