Boom in Technology and Ecommerce Spark Small Business Loan Approval Percentages in February 2018, According to Biz2Credit Small Business Lending IndexsuperscriptstartTMsuperscruptend
Commercial loans spur strong month as small business loan approvals hit post-recession heights
ahrefstartbusiness loanahrefend approval rates for big banks (25.4%) hit another new high last month, according to the Biz2Credit Small Business Lending IndexsuperscriptstartTMsuperscruptend (February 2018 figures) released today. The monthly analysis examined more than 1,000 credit applications from small businesses on Biz2Credit.com.
Big Banks
Big banks (assets of $10 billion+) are granting more than one-quarter of the small business loan applications they receive. The 25.4% approval percentage, up one-tenth of a percent from January 2018, represents another new benchmark for big banks.
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"There is a lot of demand to fund commercial real estate. While mall construction has essentially halted, ecommerce has caused a boom in the construction of warehouses and other industrial buildings,"
Rohit Arora, Biz2Credit CEO
"The prime rate has gone up, and commercial loans and SBA loans are variable rate loans. Thus, it has become profitable for banks to lend," Arora adds. "Banks are lending at 7 percent now, and with the Fed expected to raise rates again, the rates may go to 8 percent. Meanwhile, the cost of capital hasn't gone up much, so spreads are going up, and the banks have more incentive to close loans."
"Banks weren't lending to commercial, but now commercial loans are really picking up. There was relatively little construction of industrial buildings in the last 8-9 years."
Rohit Arora, Biz2Credit CEO
Small Banks
Small business loan approval rates climbed slightly at regional and community banks. Small banks approved 49.2% of the funding requests they received in February, up one-tenth from the month prior. Many of the loans processed by small banks are SBA loans.
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"The SBA made changes, and down payments for commercial real estate went down from 20 percent to 10 percent. That has spurred SBA lending," explained Arora, one of the nation's leading experts in small business finance." "Another factor is that SBA loan defaults are less than one percent. Meanwhile, the SBA's 75 percent guarantee is still in place. Arora says small banks are also selling the loans on the secondary market, which also adds to their profits.
Rohit Arora, Biz2Credit CEO
Institutional lenders
institutional lenders reached a new Index record 64.4%, up one-tenth from January. These lenders (pension funds, insurance companies, and others), continue to be important players in small business lending.
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"Institutional investors are a reliable source for small business lending," Arora said. "They offer interest rates and terms that make them very competitive with banks."
Rohit Arora, Biz2Credit CEO
Alternative lenders
Loan approval rates among alternative lenders remained at 56.6%. Approvals have dipped slowly each month for almost two years, except for a small uptick in November 2017.
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"Alternative (non-bank) lenders remain a source of funding for businesses that have bad credit histories or that need money in a hurry," Arora explained. "If you have less than stellar creditworthiness, an alternative lender may be the best - and sometimes the only - option."
Rohit Arora, Biz2Credit CEO
Credit unions
Credit unions approved 40.2% of loan applications in February, a one-tenth of a percent drop from January and a new record low for the Biz2Credit Small Business Lending Index.
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"Credit union lending to small businesses has stalled, and competitors that have invested financial technology clearly have an advantage". "I expect this trend to continue unless credit unions more fully embrace FinTech."
Rohit Arora, Biz2Credit CEO
View Past Months
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| April 2020 |
Small Business Loan Approval Rates Dropped to Record Lows in April 2020: Biz2Credit Small Business Lending Index™ |
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PPP Lending Dominates Small Business Lending, but Some Companies Applied for Non-CARES Act Funding |
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| March 2020 |
Small Business Loan Approval Rates Plummet in March 2020: Biz2Credit Small Business Lending Index™ |
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All Categories of small business lenders nosedive as coronavirus wreaks havoc on the economy |
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| February 2020 |
Small Business Loan Approval Rates at Big Banks Remain at Record High in February 2020: Biz2Credit Small Business Lending Index™ |
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Small Banks and Alternative Lenders drop, and Credit Unions remain at all-time low |
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| January 2020 |
Small Business Loan Approval Rates at Big Banks Reach New Record in January 2020: Biz2Credit Small Business Lending Index™ |
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Small banks drop slightly, while Credit Unions hit new bottom |
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About Biz2Credit Small Business Lending IndexTM
The Biz2Credit Small Business Lending IndexTM is an analysis of 1,000 monthly loan applications on the Biz2Credit website. The Index reports the loan approval rates of small business financing requests at Big Banks ($10 billion+ in assets), local and regional banks and non-bank lenders (credit unions, Community Development Financial Institutions (CDFI), micro lenders, and others).
Unlike other surveys, the results are based on primary data submitted by more than 1,000 entrepreneurs who applied for funding on Biz2Credit's online lending platform, which connects small business borrowers with sources of capital.
Results of the Biz2Credit Small Business Lending IndexTM have been reported by The Wall Street Journal, Bloomberg BusinessWeek, Entrepreneur.com, Bloomberg Radio's "The Hays Advantage", SBA Radio, NY Daily News, Crain's NY Business, Michigan Banker, and other media.