Online resource for small business finance, Biz2Credit, released its monthly lending index that revealed loan approval rates at big banks ($10 billion+ in assets) and institutional lenders increased while small banks, alternative lenders and credit unions experienced a drop in their loan approval rates in the last month.
According to the website, small business loan approval rates at big banks ($10 billion+ in assets) improved to a new all-time index high of 23.2%, up one-tenth of a percent over the last month. In a year-to-year comparison, big banks are approving 6% more funding requests on average. It was the seventh time in the last nine months that lending approval rates increased at big banks.
Biz2Credit CEO Rohit Arora, who oversaw the research, stated:
“Big banks have demonstrated their commitment to small business lending over the last two years with investments in automation that have resulted in higher profit margins. If the Federal Reserve decides to increase interest rates at the June 14-15 meeting, I expect lending approval rates at big banks to continue to surge. However, with the potential economic fallout likely if Britain leaves the European Union, an interest rate hike may not come until later this summer.”
Biz2Credit went on to reveal that institutional lenders rebounded after experiencing their first drop in loan approval rates in over two years during April. Loan approval rates improved by one-tenth of a percent to 62.8% in May, matching an all-time Index high.
Arora then noted:
“For the better part of the last two years, institutional lenders have been one of the stronger driving forces in the industry. The rebound in May is encouraging. High yields and low default rates allow this category of lenders to continue to thrive.”
For the fourth time in the last five months, lending approval rates dropped at small banks down to 48.7%, matching a two and a half year low. Arora commented:
“As big players such as J.P. Morgan and Wells Fargo expand in small business lending, it continues to negatively impact small banks. When lenders invest in technology, small business owners can now receive funding in a matter of days. This has led to higher quality borrowers gravitating to the larger financial institutions.”
Meanwhile, credit unions and alternative lenders have continued to experience a decline. Last month, alternative lenders lending approval rates dropped to 60%. Over the last two and a half years, alternative lenders’ approval rates have dropped significantly; they granted more than two-thirds of their loan requests (67.3%) in December 2013. Credit unions saw a new all-time Index low of 41.7% in May, down two-tenths of a percent from April. Loan approval percentage rates have declined at credit unions every month in the past 12 months.