Biz2Credit Small Business Lending Index
Biz2Credit Small Business Lending Index Reports Approval Rates at Big Banks Reached Post-Recession High in June 2014
A Sign of Strength in the Economy
Big banks are now approving one-in-five small business loan applications, a post-recession high, according to the Biz2Credit Small Business Lending Index, the monthly analysis of 1,000 loan applications on Biz2Credit.com for June 2014. Meanwhile, small banks, though down by two-tenths of a percent, 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% in June from 19.6% in May, while approval rates at small banks slipped to 51.4% from to 51.6% 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," explained 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," added 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% from 43.6% in May, while approval rates by alternative lenders slipped for the fifth consecutive month to 63.2% in June, from 63.3% in May
"As the economy improves, businesses are able to get funding from traditional sources, and they are less desperate. Thus, they no longer need to borrow at any cost," explained Arora. "We are starting to see a flight away from short-term, high-cost money, such as cash advances. Many players continue to jump into this category, but they have missed the boat. Cash advance as a funding option may have indeed reached its peak."
Institutional lenders granted 59.2% of the funding requests they received in June, a slight increase from 59.1% 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.
Lenders Approval %
Investors Approval %
About the Biz2Credit Small Business Lending Index
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.