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Lending at big banks, institutional investors hit post-recession highs, credit unions dip to new low, according to January 2015 Biz2Credit Small Business Lending Index
Institutional Investors Gain Market Share From Small Banks, Alternative Lenders and Credit Unions
NEW YORK, NY (February 10, 2015) — Small business loan approval rates by big banks and institutional lenders reached post-recession highs in January 2015, according to the Biz2Credit Small Business Lending Index, the monthly analysis of 1,000 loan applications on Biz2Credit.com.
Big banks ($10 billion+ in assets) approved 21.3% of small business loan requests in January 2015, up from 21.1% in December 2014.
“Big banks set another Index high because they are willing and able to make large loans and still have an interest rate advantage over competitors,” said Biz2Credit CEO Rohit Arora, who oversaw the research. “The big banks typically seek to grant loans in excess of $2 million.”
Meanwhile, institutional lenders granted 60.5% of funding requests by small business owners in January, an increase from 60.1% in December. Approval rates by institutional lenders have increased each month since Biz2Credit began monitoring this category of lenders one year ago.
“Institutional lenders are making longer term (5-year) loans and giving them larger amounts — up to $1 million,” said Arora. “Their approval rates are higher because the investments they have made in technology enables them to act quickly and minimize risk. Small banks and credit unions are lagging in technological updates.”
“The result of all this is convergence in interest rates,” explained Arora, one of the nation’s leading experts in small business finance. “Big banks and institutional lenders are lowering their interest rates and competitors have to follow suit. There is no reason that small businesses should still be paying alternative lenders and cash advance companies 30-50 percent interest at a time when most rates are very low.”
For the third consecutive month, small banks are denying more than half of their loan requests. Further, lending approval rates by small banks dropped for the eighth month in a row as they approved 49.6% of loan requests from small business owners in January, which is slightly below December’s mark of 49.7%.
“Small banks are in a crunch; they cannot compete with the brand name advantages and low rates of big banks. Meanwhile, they haven’t kept pace with online and mobile loan applications when institutional lenders are investing heavily in it. Small banks can’t make decisions as quickly, and borrowers are going elsewhere,” Arora said.
Approval rates at alternative lenders — merchant cash advance companies, factors, and other non-bank institutions — slipped for the 12th straight month to 61.6% in January, from 61.8% in December.
“Like small banks, alternative lenders have been hurt by the emergence of institutional players. With a growing economy, healthy small businesses do not need to borrow money at the high interest rates they paid during the credit crunch when they were desperate for money,” stated Arora.
Credit unions granted 43.2% of loan applications in January, a slight drop in the approval rate of 43.3% from the previous month. They continue to struggle in the small business finance marketplace.
To view the historic chart of the Biz2Credit Small Business Lending Index, visit http://www.biz2credit.com/small-business-lending-index/january-2015
About the Biz2Credit Small Business Lending Index
Biz2Credit 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. Unlike other surveys, the 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, which connects business borrowers and lenders.
About Biz2Credit
Founded in 2007, Biz2Credit has arranged more than $1.2 billion in small business funding throughout the U.S. and is widely recognized as the #1 online credit resource for startup loans, lines of credit, equipment loans, working capital and other funding options. Using the latest technology, Biz2Credit matches borrowers to financial institutions based on each company’s unique profile — completed in less than four minutes — in a safe, efficient, price-transparent environment. Biz2Credit’s network consists of 1.6 million users, 1,300+ lenders, credit rating agencies such as D&B and Equifax, and small business service providers including CPAs and lawyers. Visit http://www.biz2credit.com, follow on Twitter @Biz2Credit, and join on Facebook at http://www.facebook.com/biz2credit.