Small business loan approval rates end year on high note at big banks and institutional lenders, according to Biz2Credit’s December Small Business Lending IndexTM
Optimism for continued growth in loan approval percentages as new year begins
NEW YORK, NY (January 12, 2016) — Approval rates at institutional lenders and big banks improved to new post-recession highs in December 2015, according to today’s Biz2Credit’s December Small Business Lending Index™, an analysis of more than 1,000 small business loan applications on Biz2Credit.com.
As the U.S. economy has steadily improved, big banks and institutional lenders are more frequently granting loan requests. Additionally, small banks saw an increase in December loan approval rates in what has been an up-and-down year. Meanwhile, loan approvals at credit unions and alternative lenders continued to slow despite encouraging developments in the economy.
Lending approval rates at institutional lenders experienced a slight uptick in December, improving 62.5% from 62.4% in November.
“We are seeing increasing interest from international funds seeking higher yield investments,” said Biz2Credit CEO Rohit Arora, who oversaw the research. “Institutional lenders have reduced the risks on these types of investments through digital algorithms that have automated the loan approval process and global investments are becoming more mainstream. With the weakening of emerging markets and strong value of the U.S. dollar, we are anticipating more international funds to enter the small business finance mix.”
Big banks ($10 billion+ in assets) approved 22.9% of small business loan approvals in December, an increase by one-tenth of a percent in November.
“The big banks have maintained their aggressive approach to lending to small businesses and with the adoption of the Federal Reserve’s interest rate hike, I expect they will be even hungrier to grant loan requests,” explained Arora, one of the nation’s leading experts in small business finance. “The adoption of technological advancements on the digital platforms of big banks has streamlined the loan application process and has resulted in lower chances of loans defaulting, thus increasing profitability and a higher volume of loan approvals.
Lending approval rates at small banks improved to 49.1% in December, from 48.9% in November.
“Small banks are approving more small business loans under the SBA loan program, which reduces the risk assumed by lenders,” added Arora. “These are low-risk, low-reward types of loans and have resulted in the increase in loan approvals over the last month.”
Loan approval rates at alternative lenders remained unchanged in December, sitting at 60.7%, their lowest rate since August 2011. Alternative lenders’ approval percentages have steadily declined since January 2014, coinciding with the emergence of institutional lenders in the small business lending marketplace.
“Alternative lenders are under increased pressure to offer financial products at lower prices,” Arora suggested. “They’ve struggled to adapt and this has translated to the gradually decline in loan approval rates.”
Credit unions approved 42.3% of loan applications in December – an all-time Index low – down from 42.4% in November.
“Credit unions are losing market share and higher credit-quality borrowers due to their failure to adequately adapt to the technological advancements in the industry,” said Arora. “Borrowers seek speed and convenience; many credit unions are lacking in the digital department and this has resulted in their decline in popularity.”
Founded in 2007, Biz2Credit has arranged more than $3 billion in small business financing. Biz2Credit is focused on funding what’s next for small business. The company leverages data, cash flow insights, and the latest technology to give business owners an automated small business funding platform to fit their financial needs. With over 350 employees globally, the Biz2Credit team – made up of top-notch engineers, marketers, and data scientists – is building the next generation in business lending solutions.Biz2Credit has been named to the Inc. 5000 list and Inc. Magazine’s Private Titans list for 2020, is a three-time winner of the Deloitte Technology Fast 500 and was named a Great Place to Work in 2020 and 2019. Headquartered in New York City, the company recently raised a $52M Series B round of investment in 2019.Visit www.biz2credit.com or Twitter @Biz2Credit, Facebook, and LinkedIn.