March Drop in Loan Approval Rates at Big Banks Is a Cause for Concern

Small business loan approvals by big banks ($10 billion+ in assets) dropped to 10.9% in March, down from the 11.7% figure reported in February. This figure represents a 6.8% decline over a one-month period and from the 11.6% approval rate one year ago in March 2011.

lending down

According to the Biz2Credit Small Business Lending Index, small bank lending remained flat at a 47.6% approval rate, alternate lenders picked up slightly (0.5%) to a 63% approval rate, and loans made by credit unions barely increased (up 0.1%) to a 57.9% approval rate.

Big banks are always the most cautious, particularly when economic news is less than rosy. The March jobs report found that only 120,000 new jobs were created, significantly short of estimates of 300,000+ positions created. Meanwhile, the rising price of oil also makes borrowers and lenders wary.

So while the availability of small business capital has improved over the past 12 months than in 2009 or 2010, the flow of capital may be slowing, which is a cause of concern.

Big banks are still stringent in their loan parameters and approve loans at a lower rate than any other category of lender, despite promoting their efforts in the small business lending space.

This is disappointing news because for the past year lenders of all types had been steadily increasing the number of funding requests from small business owners that they granted. I am a bit concerned that the momentum in the last few months seems to have slowed, and business sentiment is turning cautious.

However, I am still cautiously optimistic that this is a temporary blip and not a start of a slowdown like what happened during second quarter last year when lending stalled after a good first quarter.  The good news is that credit unions and alternative lenders continue to approve more than 50% of loan requests, and small bank lending remains strong.

Lending Down Photo via Shutterstock


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."

2 Reactions
  1. Hi Rohit,

    Thanks for the update! Other signs in the economy have been pretty good in the first 3 months of 2012 — but upward movement is rarely in a straight line. It’s often two steps forward, one step back. Then 3 steps forward, one step back. And so on. We all have to remember that one backward or sideways step doesn’t necessarily mean the entire economy is going to hell in a handbasket…. Like you, I remain optimistic.


  2. I’ve been reading a few articles on the topic of small business lending and it’s amazing how they all report something different: one says it’s up, one says it’s down and another says owners are shying away from loans. They referred to a different index like PayNet Small Business Lending Index.

    Rohit, I agree that big banks have tighter restrictions. They also have more rules to follow. Small business owners in need of working capital may want to consider small, local or community banks. It also helps to have business documentation, such as a business plan. According to The Hartford study (excellent study), only 35% had a business plan.