Small business loan approval rates at big banks improved to 23.7% in November, up two-tenths of a percent from October. It marked the eighth time in the last nine months that lending approval rates increased at big banks.
"Banks have invested in technology the last year is paying its dividends. Advances in analytics enable them to approve a higher percentage of loans while lowering loan default rates," said Rohit Arora, CEO and co-founder of Biz2Credit, who oversaw the research. "When the Fed decides to increase the interest rates, I expect that loan approval rates will continue to improve gradually as it will become more profitable for them to lend."
Additionally, approval percentages at small banks improved 48.8% last month, up one-tenth of a percent from October.
For the fifth consecutive month, loan approval rates at institutional lenders improved, climbing to a new Index high of 63.3% in November 2016.
"Institutional lenders have been a big story in marketplace lending in 2016. They are here to stay," said Arora, one of the nation's leading experts on small business finance. "Right now, they are processing loans faster and more efficiently than other categories of lenders. Capital is flowing from many foreign investors due to the high yields because of uncertainty in some international markets. I expect more global investors to be involved in U.S. small business lending during 2017."
Arora believes the election of Donald Trump will positively impact lending markets. The President-elect has pledged to repeal Dodd-Frank, which brought of bevy of regulations to the banking sector since it was signed into law. "If Dodd-Frank is scaled back, small banks could be the biggest beneficiaries," Arora said.
Loan approval rates dropped at alternative lenders in November, as they granted 59.2% of loan funding requests they received.
"CAN Capital, one of the largest and oldest players in alternative lending, has stopped lending money and replaced CEO Dan DeMeo," explained Arora. "Alternative lenders have lost favor because of the high rates they charge. Meanwhile, they lost much of their competitive advantage of the speed of their decision-making as other types of lenders continue to invest in technology to expedite the loan approval process."
Loan approval rates at credit unions dropped in November to yet another Index low of 41.1%.
"Sadly, credit unions are becoming an afterthought for borrowers in small business loans," Arora says. "They aren't keeping up with the times as other categories of lenders continue to dominate the market share in small business lending."