On Tuesday, Biz2Credit released its latest small business lending index that revealed loan approval rates at big banks and institutional lenders have improved to all-time highs in September 2016. Sharing details about the index, Rohit Arora, CEO and co-founder of Biz2Credit, stated:
“The Federal Reserve failed to increase the interest rates that banks and other lending institutions were hoping for. While the Fed may decide to increase the interest rates at its next policy meeting in November, many banks are lagging behind in their loan goals for 2016. They must close more deals to meet those numbers. I expect big banks to finish strong for 2016, especially if the looming interest rate hike comes to fruition.”
Biz2Credit then noted that institutional lenders’ loan approval rates improved to an all-time high of 63% last month. It was the third consecutive month that institutional lenders experienced increases in their loan approval rates as they continue to increase market share in marketplace lending. Arora commented:
“The biggest advantages of institutional lenders are their ability to quickly process loans quickly at affordable terms for the borrower. Right now, they are doing it faster and more efficient than anyone on the market. High yields and low default rates are attracting global investors to the marketplace as it is proving to be a hot commodity for investors.”
Biz2Credit also reported lending approval rates dropped slightly at small banks to 48.7% last month. It was the first time loan approval rates dropped at small banks in back-to-back months since March 2016. Arora said:
“Not enough small banks are digitizing their loan approval process and that is holding them behind. An interest rate increase would seemingly benefit small banks because right now conventional loan rates are actually lower than SBA-backed loans and that is resulting in lower volume of loan requests for this category of lenders.”
It was also revealed that Alternative lenders experienced a decrease in loan approval rates in September, approving 59.7% of loan requests as it continues its downward spiral. Arora then noted:
“Small business owners no longer have to borrow at any cost and typically alternative lenders charge much higher rates. Alternative lenders have lost much of the competitive advantage they held for so long. As other categories of lenders offer better terms and financing just as quickly, we will see alternative lenders continue to lose market share in loan volume.”
Loan approval rates at credit unions dropped in September to an all-time Index low of 41.3%. This was the first time that rates didn’t drop in this category of lenders in over a year. Arora added:
“Credit unions are not as relevant as they once were when it comes to small business finance. They’re lagging behind in technology, a mistake in the 21st century, and are becoming an afterthought for borrowers.”