Big Bank Lending Drops While Small Bank Lending Increases

Small companies pursuing capital during the month of August found mixed results from lenders. In a month where the overall volume of loan applications increased by 4.3%, my company’s Biz2Credit Small Business Lending Index, a monthly analysis of 1,000 loan applications, revealed that approval rates increased at small banks and alternative lenders, but big banks and credit union approvals dropped in August 2012.

Big banks ($10B+ in assets) granted 10.9% of funding requests last month — a drop from 11.3% in July. This is a setback, as big banks had experienced an upswing in approvals during both June and July.

The issue with big banks is a combination of global credit issues and regulatory pressure to keep their underwriting standards tight so that they can meet their underlying capital ratios. It’s no wonder why small business owners are frustrated.

In fact, according to a recent Wall Street Journal story, “Footnote to Financial Crisis: More People Shun the Bank” by Gary Fields and Maya Jackson-Randall, middle class Americans are avoiding banks in the aftermath of the financial crisis.

However, small bank lending approvals jumped to 47.8% in August, up from 47.4% in July. The figure represents the highest approval rating percentage for small banks since we began the Index in 2011. The SBA lending program being pushed by small banks has increased their approval rates.

The loan approvals by credit unions dipped for a third consecutive month in August to 52.9%, the lowest percentage since June 2011. The slowdown in loan approval is partially caused by the 12.25% MBL ceiling, as well as sluggishness in credit unions’ willingness to book new business.

Meanwhile, alternative lenders – accounts receivable financers, merchant cash advance lenders, Community Development Financial Institutions (CDFI), micro lenders, and others – rose. In August 2012, alternative lenders approved 64.5% of loan requests, up from 64.1% in July and 6.5% higher than August 2011 approvals.

Alternative lenders recorded their highest approval rates since we began measuring the category. They are offering new products at cheaper pricing, which has helped to increase lending.

Month            Big Bank %      Small Bank %      Credit Union %        Alternative Lender %

Aug. 2011:         9.4%                43.8%                  54.2%                           58.0%
Sept. 2011         9.2%                45.1%                  55.5%                           61.5%
Oct. 2011:          9.3%                46.3%                  56.6%                           61.8%
Nov. 2011:        10.0%               47.0%                  57.0%                           62.0%
Dec. 2011:         9.7%                47.1%                  57.4%                           62.2%

Jan. 2012:         11.7%               47.5%                  57.6%                           62.4%
Feb. 2012:         11.7%               47.6%                  57.8%                          62.5%
Mar. 2012:        10.9%                47.6%                  57.9%                          63.0%
Apr. 2012:         10.6%               45.9%                  57.4%                           63.0%
May 2012:         10.2%               45.5%                  57.6%                           63.2%
Jun. 2012:         11.1%               47.5%                  55.8%                           62.9%
Jul. 2012:          11.3%               47.4%                  54.6%                           64.1%
Aug. 2012:        10.9%               47.8%                  52.9%                           64.5%

* Banks with more than $10 billion in assets are classified as “big banks.”
* Banks with less than $10 billion in assets are classified as “small banks.”
* Credit Unions are considered a category in the Biz2Credit Small Biz Lending Index.
* “Alternative lenders” include accounts receivable financers, merchant cash advance lenders, Community Development Financial Institutions (CDFI), micro lenders, and others.

As the Presidential election draws near, both parties will be looking at unemployment figures and small business growth as key issues. Mitt Romney and President Obama both want to be seen as the best person to help small businesses expand.

Many businesses have begun seeking short-term working capital to prepare for the upcoming holiday season. Of late, the best places to get it were small banks and alternative lenders.

Down Up Photo via Shutterstock

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