On Wednesday, Biz2Credit announced its latest small business lending index revealed that loan approval rates at big banks ($10 billion+ in assets) improved to new post-recession highs in February 2017. The index also reported small banks and institutional investors also experienced an uptick in their loan approval rates in an overall favorable month for small business lending. Also, loan approval rates at credit unions remained still, and the approval rates at alternative lenders have dropped.
According to Biz2Credit, small business loan approval rates at big banks improved to 24.1% last month, which is marking the seventh consecutive month of increases and the 11th time in a calendar year that approval percentages have increased. Further, loan approval rates at big banks in a year-to-year comparison are up more than one full percentage point, as they slowly creep towards the one-quarter mark. Biz2Credit CEO, Rohit Arora, stated:
“There is a confidence in the economy right now, and that is translating to higher loan approval rates at mainstream lending institutions. Small business owners are optimistic that there are bright days ahead and are applying for capital to invest in growing their businesses.”
Biz2Credit then noted that for the first time in the last six months, loan approval rates at small banks dropped by one-tenth of a percent to 48.8% in February from 48.9% in January. The approval rates at small banks dropped below 50% two and a half years ago and struggled to reach the mark again. Arora shared:
“Although small banks dipped slightly in their loan approval percentage last month, there is some room for optimism. President Trump has prioritized reforming the Dodd Frank legislature to scale back regulations for community banking institutions. His administration is aggressively working towards reducing the burdensome bill to small banks, which will allow them to lend more freely.”
It was revealed institutional lenders’ loan approval rates improved to 63.5%, reaching a new Index high. It was the second time in the last three months that this category of lenders had an uptick in their loan approval rates. Arora said:
“The stock market and U.S. dollar are very strong and this is attracting a high volume of investors from various parts of the world,” said Arora. “Small business lending is still one of the most profitable sectors to invest in and we are seeing a number of yield-hungry investors getting involved in this space of loans.”
Loan approval rates also dropped at alternative lenders in February, as they approved 58.4% of the loan requests they received, down one-tenth of a percent from 58.5% in January. Arora explained:
“Alternative lenders have struggled to adjust to its industry competition, which have caught up to the one advantage they once held – speed of processing loan requests. The advancements in technology at big banks and institutional lenders have led to quicker, more efficient loan approvals. Investments in technology enable these big lending institutions to offer affordable loan products as they significantly mitigate risk.”
Biz2Credit went on to add that loan approval rates at credit unions remained stagnant at 40.8%, the low mark for this category of lenders. Arora stated:
“Credit unions have become an afterthought for small business borrowers. Competitors are taking market share away from credit unions, which are frequently left with less creditworthy borrowers.”