July 9 , 2014
Big bank approval rates reach post-recession high in June
U.S. – Big banks are now approving one-in-five small business loan applications, a post-recession high, says the ‘Biz2Credit Small Business Lending Index’. Meanwhile, small banks, though down by two-tenths of a per cent, are granting more than half of requests they receive from entrepreneurs.
Small business loan approval rates at big banks ($10 billion+ in assets) rose to 20 per cent in June from 19.6 per cent in May, while approval rates at small banks slipped to 51.4 per cent from to 51.6 per cent last month.
“The strong return of banks in small business lending indicates three things: overall improving economy, entrepreneur confidence that they will be able to borrow for expansion and repay the loans, and the increasing ease and popularity of SBA lending,” says Biz2Credit CEO Rohit Arora, who oversaw the research. “This is a sign that the economy continues along the right path."
“Higher EBITDA (earnings before interest, taxes, depreciation, and amortization) that small businesses are showing in their financial documents substantially increases their chances of securing conventional financing. They are using this funding for upgrades such as building and equipment purchases. The types of purchases that small business owners are making are an excellent sign for the U.S. economy,” says Arora, one of the nation's leading experts in small business lending.
The Biz2Credit Small Business Lending Index also reported that approval rates by credit unions and alternative lenders were relatively unchanged, while institutional lenders continued slow but steady growth in approval percentage. In June, loan approval rates at credit unions improved slightly to 43.7 per cent from 43.6 per cent in May, while approval rates by alternative lenders slipped for the fifth consecutive month to 63.2 per cent in June, from 63.3 per cent in May.
“Entrepreneurs are getting funding from banks at attractive interest rates. They no longer need to borrow at any cost,” says Arora. “Alternative lending, because of its high interest rates seems to be waning as traditional lenders return to the marketplace."
Institutional lenders granted 59.2 per cent of the funding requests they received in June, a slight increase from 59.1 per cent in May. These institutions include insurance companies, credit funds, family funds, and other yield-hungry, non-bank financial institutions. They typically offer more competitively priced loan options than alternative lenders in amounts up to $1 million.
Biz2Credit analyzed loan requests ranging from $25,000 to $3 million from companies in business more than two years with an average credit score above 680. Unlike other surveys, the results are based on primary data submitted by more than 1,000 small business owners who applied for funding on Biz2Credit’s online lending platform, which connects business borrowers and lenders.