The rising percentage of small business loan approvals at big banks ($10 billion+ in assets) 19.6% in May 2014, up from 19.4% in April, and small banks, which jumped to 51.6% from 51.1% from last month, are a good sign for entrepreneurs and for the economy overall.
According to my company’s latest Biz2Credit Small Business Lending Index, a monthly analysis of 1,000 loan applications on Biz2Credit.com, big banks are approving nearly one out of every five funding requests and small banks are granting more than half.
Small business owners are confident and are investing in the expansion of their businesses. They are seeking SBA loans, as well as non-SBA loans, which take a shorter period of time to approve, have less restrictions and more flexibility, and frequently offer better interest rates.
Lenders are getting applications from established businesses that are showing three years of profitability. At the same time, big banks are hungry to make loans, in part because the mortgage lending remains stagnant and because lending to solidly performing small businesses is less risky than it was during the recession.
Conversely, approvals by alternative lenders decreased for the fifth consecutive month to 63.3% in May from 63.5% in April 2014. Banks and institutional lenders, which are attracting higher quality borrowers unwilling to pay the high interest rates that alternative lenders, such as cash advance companies, are offering.
This means that as the economy improves, businesses are able to get funding from traditional sources. They are less desperate for cash infusions and no longer need to borrow at any cost. Small business owners are moving away from short-term, high-cost money, such as cash advances.
Non-traditional lenders became quite valuable to small business owners during the so-called “credit crunch” when banks essentially cut off funding for small companies. However, cash advance as a funding option seems to have lost steam as better deals can be reached with banks, as well as institutional lenders that have now entered the marketplace.
Institutional lenders granted 59.1% of the funding requests they received in May, a nearly one-point jump from 58.3% in April. These institutions include insurance companies, credit funds, family funds, and other yield-hungry, non-bank financial institutions. They typically offer more competitively priced loan options than alternative lenders in amounts up to $1 million and they are taking away market share from alternative lenders. They are gathering momentum as a category of small business lender as company owners to borrow larger sums of money at cheaper interest rates.
To view the historic chart of the Biz2Credit Small Business Lending Index, visit http://www.biz2credit.com/small-business-lending-index/may-2014.html