Approval rates for small business loan applications rose to another post-recession record (27.9%) at big banks ($10 billion+ in assets), while approval percentages also stayed above 50% at small banks in September, according to the latest Biz2Credit Small Business Lending Index™.
Big banks have a lot of advantages in small business lending. Firstly, they benefit from having brand names that everyone knows. They are an appealing source of capital also because they can offer lower interest rates at shorter terms. However, banks prefer to make bigger loans to more established companies. In order to get a bank term loan, you would have good to excellent credit.
Bank lending to small businesses remains strong at big banks, as well as at regional and community banks. With the recent Fed announcement that interest rates will drop, I expect business lending will continue to grow for the rest of 2019.
Traditional bank loans and SBA loans are available at smaller banks, where small business loan applications in September remained at 50.3%. SBA-backed loans require more paperwork and take longer to process. However, their government backing mitigates the risk for lenders, which helps companies that might not be able to qualify for traditional term loans secure funding. Because of the overall strength of the economy, greater numbers of businesses qualify for funding. Having approval rates above the 50% mark is indeed a good sign.
Institutional lenders’ approval rates again rose one-tenth of a percent to 65.9% from August’s figure of 65.8%. These lenders are a good source of small business loans and have been for the past several years. They provide funding at attractive rates and terms.
Small business loan approval rates among alternative lenders slipped one-tenth of a percent to 56.5% from 56.6% in August.
Non-bank alternative lenders are a viable funding source for companies whose credit scores do not qualify them for traditional bank loans. Even as bank lending shows growing strength, alternative lenders are valuable as a funding source to many small business owners – especially ones who have credit scores of 650 or less. Alternative lenders have looser requirements for approval and thus are accepting more risk in lending. The borrower pays a premium for that risk in the form of higher interest rates.
Credit unions’ approval rates fell to 39.7% in September, slipping from the 40% mark in August. The figure is a record low for since Biz2Credit began analyzing business loan approval percentages in 2011. Other categories of lenders are all moving to digital applications. I would say that credit unions have lost their way in small business lending in today’s low interest rate. Certainly, the Member Business Lending cap (12.25% of their assets) does not help.
Meanwhile, banks and institutional lenders are more aggressive in small business lending. If your business needs money right now, they have as good a chance as there has ever been for securing capital.
