Small business financing at big banks and at institutional investors finishes strong in landmark year, according to December 2014 Biz2Credit Small Business Lending Index
Loan Approval Rates Drop for Seventh Consecutive Month at Small Banks, Alternative Lenders and Credit Unions Also Stalled as 2014 Ended
NEW YORK, NY (January 13, 2014) — Small business loan approval rates by big banks and institutional lenders reached post-recession highs in December 2014, according to the Biz2Credit Small Business Lending Index, a monthly analysis of 1,000 loan applications on Biz2Credit.com.
Big banks ($10 billion+ in assets) approved 21.1% of small business loan requests in December, which is up from 20.8% in November and marks back-to-back months of increases. Further, a year-to-year comparison shows that lending approval rates at big banks are up nearly 20 percent.
“The higher percentage of loan approvals at big banks is good news for small business owners. However, big banks typically seek to grant loans of $500,000 or more and much prefer loans in excess of $2 million,” said Biz2Credit CEO Rohit Arora, who oversaw the research. “Many startups and young companies do not need that much money. Thus, big banks may not the answer for these types of borrowers.”
Meanwhile, institutional lenders granted 60.1% of funding requests by small business owners in December, an increase from 59.9% in November. Approval rates by institutional lenders have increased each month since Biz2Credit began monitoring this category of lenders in January 2014.
“Institutional lenders continue to be prominent factors in the small business finance game,” said Arora. “They are offering a wider variety of financial products that are more attractive to borrowers, including longer terms and lower interest rates than other non-bank alternative lenders.”
“Credit-worthy borrowers are increasingly opting to apply for loans at institutional lenders because of the simplicity of getting financing from these lenders and more attractive terms that are offered,” explained Arora, one of the nation’s leading experts in small business finance. “They are also approaching big banks, which enjoy better brand names and are getting the highest quality borrowers coming to them.”
For the second consecutive month, small banks are denying more than half of their loan requests. Further, lending approval rates by small banks dropped for the seventh month in a row as they approved 49.7% of loan requests from small business owners in December, which is slightly below November’s mark of 49.8%. Despite the steady drops in lending approval rates at small banks, a year-to-year comparison shows that these loan approval rates are nearly identical to last year’s numbers.
Approval rates at alternative lenders — merchant cash advance companies, factors, and other non-bank institutions — slipped for the 12th straight month to 61.8% in December, from 62% in November.
“Small business owners’ financials have improved. Their performance is better and they are increasing their business credit scores. As a result they are not as desperate for money as they were during the recession when many alternative lenders could charge very high interest rates,” added Arora.
Credit unions granted 43.3% of loan applications in December, a slight drop in the approval rate of 43.4% over the previous month as they continue to struggle making a bigger presence 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/december-2014.
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.
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 www.biz2credit.com, follow on Twitter @Biz2Credit, and join on Facebook at www.facebook.com/biz2credit.