Small Business Loan Approval Rates by Institutional Lenders Continue Increase, According to Biz2Credit's November Small Business Lending IndexsuperscriptstartTMsuperscruptend
Looming Interest Rate Hike Could Lead to Higher Loan Approval Rates
Small business loan approval rates at institutional lenders continued their gradual ascent, according to Biz2Credit's November Small Business Lending IndexsuperscriptstartTMsuperscruptend , an analysis of more than 1,000 loan requests of qualifying small business owners. While big banks maintained their overall healthy approval rates. However, loan approval rates for small business loans at small banks, credit unions and alternative lenders faltered.
Big Banks
Big banks ($10 billion+ in assets) approved 22.8% of small business loan approvals in November, which matched last month's figure. However, there is optimism that small business lending by big banks will increase in the coming months as Federal Reserve Chairwoman Janet Yellen recently hinted that the Fed would raise interest rates in the near future.
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"An increase in interest rates would boost the incentive for big banks to approve a higher percentage of loan requests,"
Rohit Arora, Biz2Credit CEO
"As the financial spreads on these requests improves, I expect to see more loans approved with the mainstream lenders. Higher profitability on loans will lead to more loan approvals."
Rohit Arora, Biz2Credit CEO
Small Banks
Lending approval rates at small banks dropped to 48.9% in November, from 49% in October. In addition, for a full calendar year, small banks have denied more than half of their loan requests.
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"We are seeing more creditworthy borrowers opting for loans at big banks and institutional lenders," ."Small banks have suffered in the last year due to their failure to adapt to improvements in technology and other areas of operations, thus making it more difficult for small business owners to apply for loans. However, the looming interest rate increase should provide small banks with an opportunity to approve more loans."
Rohit Arora, Biz2Credit CEO
Institutional lenders
Institutional lenders continued month-over-month growth in November, reaching 62.4%, up from 62.2% in October.
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"Institutional lenders are offering better terms to borrowers, and they are noticing,". "Investors are purchasing a greater number of loans at lower yields and longer terms as well as low regulatory risks. They are becoming very active players in small business lending."
Rohit Arora, Biz2Credit CEO
Alternative lenders
Loan approval rates at alternative lenders dropped for a third straight month from 60.8% to 60.7% in November. Alternative lenders' approval percentages have steadily declined since January 2014, coinciding with the emergence of institutional lenders in the small business lending marketplace.
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"Alternative lenders are not offering competitive terms on their loans and thus are one of the final options for small business owners seeking capital," Arora stated. "This has resulted in less qualified borrowers and a gradual drop in loan approvals, despite the high interest rates that alternative lenders charge."
Rohit Arora, Biz2Credit CEO
Credit unions
Credit unions approved 42.4% of loan applications in November, down one-tenth of a percent compared to October.
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"Credit unions are still limited, in part because of the failure to increase the credit union member business-lending (MBL) cap from 12.25% of their assets to 27.5%," Arora explained.
Rohit Arora, Biz2Credit CEO
View Past Months
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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 |
| View Report |
| 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 |
| View Report |
| December 2019 |
Banks’ Small Business Loan Approval Rates Hit Record High in December 2019: Biz2Credit Small Business Lending Index™ |
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Improvement seen at big banks, small banks, and institutional investors |
| View Report |
| November 2019 |
Big Banks’ Small Business Loan Approvals Continue to Rise, Reach New Record High in November, According to Biz2Credit Small Business Lending Index™ |
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Improvement seen in lending by big banks, small banks, and institutional investors in November |
| View Report |
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.