Bank Lending to Small Companies Improved Dramatically in Feb. 2014; Biz2Credit Small Business Lending Index Reports Record High Loan Approval Rates at Banks
Credit Unions and Alternative Lenders Experience Decrease in Approvals as Banks Grant Increasing Numbers of Non-SBA Loans
Small business loan approval rates at big banks ($10 billion+ in assets) jumped to 19.1% in February 2014, up from 17.8% in January, according to the Biz2Credit Small Business Lending Index, a monthly analysis of 1,000 loan applications on Biz2Credit.com. In a year-to-year comparison, lending approval rates at big banks have increased more than 20 percent.
"We continue to see that big banks are increasing their approvals of both SBA and non-SBA loans," explained Biz2Credit CEO Rohit Arora, one of the nation's leading experts in small business lending. "Confidence in the economy and winter-stressed financials have encouraged businesses to be more bullish on applying for funds to invest in their companies."
Small business loan approvals at small banks increased to 51.4% in February 2014, up from 50.9% in the previous month.
"Banks are starting to recognize the value of technology, especially with the online adoption of loan seekers." said Arora, who oversaw the research. "They closed a lot of SBA loans in February."
Meanwhile, credit unions continue their slide in lending approvals. In February, small business loan approval rates at credit unions dipped from 43.4% in January to 43.3%, the lowest figure in since the Biz2Credit Index began at the start of 2011. Additionally, lending approval rates by credit unions has declined in 17 of the last 21 months and is down by nearly 25 percent during that period.
Alternative lenders had a slight decrease in approval rates to 63.9% in February from 64.1% in January 2014. Alternative lenders, which had been the biggest benefac"Small business loan approvalstors of the government shutdown last October, are starting to feel some competition from institutional lenders.
"Pricing pressure on alternative lending has increased, and fewer businesses are inclined to take high cost cash advances," Arora explained. "Some business owners don't realize how high the interest rates are from alternative lenders when they first secure the funding. If and when they can, small business owners pursue traditional bank loans at lower rates. This leaves the alternative lenders with poorer quality loan applicants, which is why their approval rates have declined."
Institutional Lenders approved 56.6% of the funding requests they received in February, a slight increase from 56.5% in January, the first month that this category of the Biz2Credit Small Business Lending Index was measured. This category of lenders includes credit funds, insurance companies, family funds, and other yield-hungry, non-bank financial institutions that typically offer more competitively priced loan options than alternative lenders in amounts up to $1 million.
"Institutional investors aggressively pursuing small business lending deals. They offer interest rates generally between the rates offered by banks (in the 6-8% range) and alternative lenders, which can charge 20-50%," Arora said. "Pricing pressure on alternative lending has increased and fewer businesses are inclined to take high cost cash advances."
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