Small Businesses Seeking Capital See Decrease in Big Bank Loans

small businesses seeking capital

After a positive run for much of the year, small business loans from big banks dropped in October for the first time in seven months. Small business loan approval rates from big banks to small businesses dropped from 20.6 percent in September to 20.4 percent in October, according to the October 2014 Biz2Credit Small Business Lending Index.

The Lending Index from Biz2Credit takes a monthly look at small business lending trends. The data for the Lending Index is gleaned from an analysis of 1,000 loan applications at every month.

Big bank-to-small business lending approval rates had risen for seven consecutive months, through September. The 20.4 percent rate in October matches the same rate posted in August.

Though this new data represents a slight setback for small businesses, Biz2Credit CEO Rohit Arora says the October rate is still 20 percent higher than it was in November 2013.

Commenting on the official release issued with the Index results, Arora explains:

“Despite the small drop in approval percentages, big bank financing of small businesses is up nearly 20 percent in comparison to last November when the economy was reeling from the government shutdown. With improving economic conditions, entrepreneurs have shown willingness to invest in their firms more this year than in any other since the Great Recession of 2009-11.”

Some of the decrease in big bank loan approvals may have to do with an increased presence of institutional lenders moving into the marketplace.

Biz2Credit has only begun monitoring loan approval rates from institutional lending to small businesses since January but the approval rate has increased every month. That includes a jump to 59.7 percent in October up from 59.5 in September. Arora explains:

“People are seeking to do capital investments and are looking for money and shopping around. You can easily shop online and get longer terms. Institutional lenders have capitalized on the decreasing demand of short-term loans, which often came at a high cost and were granted by alternative lenders.”

As big banks are becoming more friendly to small businesses seeking capital to expand their operations however, institutional lenders continue to expand their support of small business.

Arora adds that reaching out to small businesses is helping institutional lenders connect with them. The competition means small business owners have options when it comes to choosing a lender. Arora adds:

“Big banks have demonstrated their commitment to small business owners over the last year. However, institutional lenders are moving into the marketplace and attracting some high quality borrowers.

But the weaker lending trend for small businesses continued at small banks last month, too. Approval rates from small banks to small businesses dropped from 50.3 in September to 50.2 percent in October. That’s a five-month slide for this lending segment, based on Biz2Credit’s data.

Small lenders are lagging in their pursuit of small businesses, Arora says. Big banks are attracting small businesses and making it easier to apply for a loan. He adds:

“Some smaller banks are paying the price for being slow to accept online applications. The increased competition from big banks and institutional lenders are hurting them because higher quality borrowers are going to these competitors instead of small banks.”

Alternative lender support of small businesses continues to dip, too. Biz2Credit’s data shows that approval rates from cash advance companies and other non-bank lenders dropped for the ninth straight month. That approval rate slipped from 62.6 in September to 62.1 percent in October.

The loan approval rate for small businesses through credit unions went up slightly last month, from 43.4 in September to 43.5 percent in October. Still, Arora believes that credit unions have become an “afterthought” for small businesses seeking loans.


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Joshua Sophy Joshua Sophy is the Editor for Small Business Trends and the Head of Content Partnerships. A journalist with 20 years of experience in traditional and online media, he is a member of the Society of Professional Journalists. He founded his own local newspaper, the Pottsville Free Press, covering his hometown.

11 Reactions
  1. Only 1 in 5 applications for a loan at a large bank is approved? That’s the story right there. How is that not higher?

  2. What’s disheartening for a small business owner is the time frame of the application process. The business owner applies for a loan, wait for weeks, sometimes as long as three months just to be told their loan request has been denied. Some secondary lenders like the ones listed on actually get business owners in a matter of days. Secondary lenders also have less requirement than big banks. I think they’ll gain more popularity in the near future.

  3. The problem most small business owners have is they have no idea how to financially run a business, there business becomes there 9 to 5 job so to speak, most business owners belong in a 9 to 5 job, they have no clue how to run a successful business they are just like everyone else getting by, “by paycheck to paycheck…”

  4. This has been the case since 2008 and it isn’t getting any better. These loans especially if they are under a million dollars are not lucrative for the big banks. Alternative financing with companies like ODC and Yendora, is what has saved a lot of small business owners. Hopefully the law makers figure out a way to help.

  5. Well seeking loan from big banks are a tedious task now, due to loads of procedures involved with it. But all thanks small lending institutions who are doing wonderful job towards helping people in times of crisis.