On Tuesday, Biz2Credit unveiled the findings of its recent small business lending index, which revealed that loan approval rates at big banks (over $10 billion in assets), alternative lenders, and credit union dipped in July 2016. CEO of Biz2Credit and who oversaw the research, Rohit Arora, stated the small business loan approval rates at big banks dropped to 23.1% in July, which is down two-tenths of a percent from June’s numbers:
“The economy in the second quarter was a bit sluggish because of slower global growth; this impacts big banks more than other lenders. When there is turbulence in international markets, such as the angst over Britain’s leaving the EU, big banks tend to become more conservative in their lending. Brexit had some impact, but not a major one, on small business finance.”
Arora also noted the institutional lender loan approval rates went up to 62.8% in July, which matches an all-time index high:
“Over the last two years, institutional lenders have emerged as a strong driving force in the industry and continue to provide affordable loan products to borrowers with high rates of success,” said Arora, one of the nation’s leading experts on small business finance. “This category of lender is doing well because of high yields and low default rates. Further, institutional investors from other countries are looking to enter the U.S. market as there currently is much global uncertainty, especially in Europe. This is encouraging for small business owners and start-ups seeking capital. I expect this trend to continue.”
He then reported alternative lenders experienced a loan approval rate decrease and approved three out of five loan requests, which was 60%:
“Alternative lenders have steadily lost favor among small business borrowers, in large part because their cost of capital is so high,” Arora explained. “Credit-worthy borrowers can typically secure better interest rates and terms from other types of lenders. Alternative lenders still have some appeal for borrowers whose credit scores might be low.”
In regards to credit unions, Rohit went on to add that they continued their decline in loan approval rates, drop to an all-time Index low of 41.5% in July, which is down one-tenth of a percent from June:
“Credit unions are behind in the times when it comes to utilizing digital technology. This slows down the loan process significantly. Borrowers prefer to receive the funding from their loan requests as quick as possible, and thus are opting to competing categories of lenders from whom they can receive funding faster.”