Small banks continue to grab a big share of the small business loan market. A recent survey shows small lenders already grant more than half of small business loans. And last month, approval rates jumped again to 51.6 percent from 51.1 percent in April.
Rohit Arora, CEO of Biz2Credit, an online lending marketplace, explains:
“This development is a sign that the economy is improving. Lenders are getting applications from more 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.”
The results were part of the May 2014 Biz2Credit Small Business Lending Index, a monthly survey of 1,000 loan applications on Biz2Credit.
The survey showed small banks continue to issue a larger share of small business loans than even their larger competitors.
However, large banks with over $10 million in assets also saw an increase in lending last month and now approve almost one out of every five small business funding requests, the survey says.
“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 sometimes offer better interest rates.”
It seemed the only category to continue to see a decrease was alternative lending including cash advance companies. This group of lenders saw its sixth consecutive decrease in May’s survey as the economy improved and more qualified small businesses sought banks or institutional lenders with better interest rates.
“As the economy improves, businesses are able to get funding from traditional sources, and they are less desperate. Thus, they no longer need to borrow at any cost. We are starting to see a flight away from short-term, high-cost money, such as cash advances. Many players continue to jump into this category, but they have missed the boat. Cash advance as a funding option may have indeed reached its peak.”
Credit unions and institutional lenders also continued to see increases in lending approvals, the survey said.