Alternative business lender Biz2Credit says banks are lending less to businesses now following 6 months of increases. This is according to information released by Biz2Credit where they analyzed loan requests ranging from $25,000 to $3 million from companies in business more than two years with an average credit score above 680. Their results are “based on primary data submitted by more than 1,000 small business owners who applied for funding on Biz2Credit’s online lending platform”.
According to their data small business loan approval rates at big banks ($10 billion+ in assets) dipped to 20.4% in October from 20.6% in September.
Biz2Credit CEO Rohit Arora, who managed the research, stated;
“Big banks have demonstrated their commitment to small business owners over the last year. However, institutional lenders are moving into the marketplace and attracting some high quality borrowers,” said Arora. “Despite the small drop in approval percentages, big bank financing of small businesses is up nearly 20 percent in comparison to last November when the economy was reeling from the government shutdown. With improving economic conditions, entrepreneurs have shown willingness to invest in their firms more this year than in any other since the Great Recession of 2009-11.”
Their research indicates the percentage of loans granted by small banks slipped for the fifth consecutive month to 50.2% from 50.3% last month. However, a year-to-year comparison shows that small business lending approval rates are still significantly higher at big banks, while remaining mostly stagnant at small banks over the past 12 months.
“Some smaller banks are paying the price for being slow to accept online applications,” Arora said. “The increased competition from big banks and institutional lenders are hurting them because higher quality borrowers are going to these competitors instead of small banks.”
Institutional lenders, according to their report, granted 59.7% of the funding requests they received in October, a slight increase from 59.5% in September. Approval rates by institutional lenders has increased every month since Biz2Credit began monitoring this category of lenders in January 2014.
“Small business lending is becoming mainstream among institutional players, who are offering more long-term products. They are providing strong competition to big banks and look to be a long-term threat for banks in the small business lending space,” Arora explained. “Big banks long had the advantage of a vast distribution network, the branches, which are now fading away. Also, immigrants are not as impressed by the brand names of big banks. That’s an advantage they long held.”
At the same time, approval rates at alternative lenders — merchant cash advance companies, factors, and other non-bank institutions — slipped for the ninth consecutive month to 62.1% in October, from 62.6% in September. Credit unions granted 43.5% of loan applications in October, a slight rise over the approval rate of 43.4% last month. However, a year-to-year comparison shows that lending approval rates at credit unions are down as they continue to be an afterthought by small business loan applicants.