Small Business Lending Index January 2016 - Biz2Credit

Biz2Credit Small Business Lending IndexTM

January 2016


Stock Market Volatility Leads to Drop in Loan Approvals at Banks, Credit Unions, According to Biz2Credit Small Business Lending IndexTM for January 2016

Institutional Lenders and Alternative Lenders Capitalize on Slow Month for Mainstream Financial Institutions

Loan approval rates at both big banks and small banks dropped in January 2016, according to the Biz2Credit Small Business Lending IndexTM, the monthly analysis of more than 1,000 small business loan applications on Additionally, loan approval percentages at credit unions fell to an all-time Index low. Meanwhile, institutional lenders and alternative lenders experienced an uptick in loan approval rates.
"The turbulence in the stock market and plummeting oil prices in the last month have resulted in a level of uncertainty for lenders," suggested Biz2Credit CEO Rohit Arora, who oversaw the research. "While the demand for small business loans held up, the approval standards tightened."

Institutional lenders

Lending approval rates at institutional lenders experienced a slight uptick in January, improving 62.6% from 62.5% in December. Since introduced as a category of lenders to the Index in 2014, institutional lenders have yet to experience a setback month.

"Institutional lenders are doing a great job at minimizing the risks of borrowing requests through advanced algorithms," said Arora. "In recent months, we are seeing more international funds enter the game seeking higher yields from investments. With growing uncertainty in global emerging markets, I expect this to remain a popular commodity for both investors and borrowers."

Big Banks

For the second time in six months, lending approval rates at big banks ($10 billion+ in assets) declined as they approved 22.7% of funding requests in January, down two-tenths of a percent from December 2015. However, a year-to-year comparison shows that lending approval rates are up 6.5%.

"Outside economic factors attributed to the drop in loan approvals at big banks last month," suggested Arora, one of the nation's leading experts on small business finance. "When there is uncertainty in the market, mainstream lending institutions are less inclined to take risks on loans."

Small Banks

Lending approval rates at small banks dropped slightly to 49% in January, from 49.1% in December.

"Small banks have been slow to adapt to technological innovations to streamline the loan application process, so they are receiving requests from lesser-quality borrowers. This is hindering them from approving more loans," explained Arora.

Credit Unions

Credit unions approved 42.2% of loan applications in January - an all-time Index low - down from 42.3% the month prior.

"Credit unions are faltering because of their inability to adapt to technological advancements in the industry," said Arora. "Borrowers seek speed and convenience; many credit unions are lacking in the digital department. This has resulted in a decrease in applications from credit-worthy borrowers."

Alternative Lenders

Loan approval rates at alternative lenders remained improved in January to 60.8%, up one-tenth of a percent from a previous all-time low. Alternative lenders' approval percentages have steadily declined since January 2014, coinciding with the emergence of institutional lenders in the small business lending marketplace.

"While lending approvals dropped at the mainstream lenders, alternative lenders picked up the slack," Arora suggested. "Alternative lenders typically offer more expensive loan products, so they are often one of the last choices for borrowers."