It isn’t quite the golden days of pre-recession financing. But small business lending has reached a post-recession high. That’s the unvarnished optimistic conclusion of the June 2014 Biz2Credit Small Business Lending Index.
The index is a monthly analysis of 1000 loan applications on Biz2Credit.com. The company says it connects 1.6 million small business owners with more than 1,300 lenders, credit rating agencies and service providers like CPAs and attorneys.
In a prepared statement, co-founder and CEO Rohit Arora contrasted today’s lending situation with that of just a few years ago, adding:
“In the Great Recession and its ensuing ‘Credit Crunch,’ lenders tightened the spigot on small business, and the flow of capital to entrepreneurs evaporated. Many times, small business owners chose not to bother applying for loans under the assumption that they would be turned away.”
Who could blame them when most requests were being rejected?”
But today all that has changed.
The data shows larger banks now granting one in five small business loan applications, the most in half a decade. While small business lending at smaller banks slipped by .2 percent from May 2014, their approval rate still remains at more than half.
Finally, the index says, approval at credit unions increased by another .1 percent, showing a consistent growth.
How did all this happen?
In the depths of the credit crunch between 2008 and 2010, businesses required to show banks three years of financial records to qualify for a loan were often rejected because of the poor performance those records showed.
Lack of traditional bank lending led to the rise of so-called “alternative lenders” including cash advance companies willing to loan even to businesses with poor credit histories.
But the interest rates on these loans were incredibly steep, often between 30 and 50 percent.
By 2012, financial records were better with businesses squeezing out more profit while continuing to run lean. And soon lending began to recover as a result.
“Today, business owners are more confident than they were during the recession. They are also more willing to risk borrowing money to fund expansion and are using the financing for big ticket items, including building and equipment purchases. These types of purchases generally occur when there is confidence in the future.”
He also credits the U.S. Small Business Administration for its continued efforts guaranteeing 75 percent of all SBA backed loans and waiving all fees thus making these loans all the more attractive in a tough economy.
Biz2Credit also continues its efforts to bring lenders and businesses together, having secured more than $1.2 billion for thousands of small businesses since 2007, according its website.
More in: Biz2Credit
This is interesting because 90% of our leads come from banks after they have declined customers and our business is booming. We haven’t been busier since the recession.
At what point in the loan process is a small biz considered an applicant for this index? Is it after they’ve already met pre-screen quals? After credit score check? Or is just anyone/everyone who starts process?
If it’s the latter, I bet the 20% approval number would be much lower.
1 in 5 small business loan application are granted by the big banks! Remember the SBA changed the definition of small business a couple of years ago. According to the guidelines, some contracting companies that generate up to $14 million annually, retail clothing stores with $38.5 million and convenience stories with $27 million in annual revenue will be considered small businesses.
A number of industries that have 500 to 1,000 workers are now classified as small businesses!!
Lots of small business are still being left to fend to get cash advances or high rate loans.
The SBA’s definition of “small business” is right up there with grants.gov’s definition of small business:
Manufacturing and mining businesses with 500 or more employees
Wholesale trade industries with 100 or more employees
Retail and service industries with revenues from $6 million
General and heavy construction industries with revenue from $28.5 million
Special trade contractors with revenue from $12 million
Agricultural industries with revenue from $.75 million
So true small businesses can’t qualify for grants or loans but the SBA can boast that they are backing small business loans to the tune of billions of dollars using their skewed definition of “small”. The big get bigger and the little guy can’t even get a new business off the ground.