Who’s Making Small Business Loans?

Nov 20, 2012

Small companies seeking business loans during August found mixed results from different types of lenders. In a month where the overall volume of loan applications increased by 4.3 percent, 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 percent of funding requests last month—a drop from 11.3 percent in July. The big banks had experienced an upswing in approvals during both June and July. Global credit issues and regulatory pressure to keep their underwriting standards tight so that they can meet their underlying capital ratios are the two primary reasons for the decline.

The good news is that small bank lending approvals jumped to 47.8 percent in August, up from 47.4 percent in July. The figure represents the highest approval rating percentage for small banks since Biz2Credit 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 percent, the lowest percentage since June 2011. The slowdown in loan approval is partially caused by the 12.25 percent 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 percent of loan requests, up from 64.1 percent in July and 6.5 percent higher than August 2011 approvals.

Alternative lenders recorded their highest approval rates since Biz2Credit began measuring the category. They are offering new products at cheaper pricing, which has helped to increase lending.

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.

A frequently quoted expert on small business lending and recently named the Top Entrepreneur of 2011 by Crain’s New York Business, Rohit Arora is CEO of Biz2Credit, which connects small business owners with 300 lenders, credit rating agencies and service providers. Since 2007, Biz2Credit has secured $400 million in funding for small businesses in New York and across the U.S. via its safe, efficient online platform.

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