Small Business Loan Approval Rates Remain Strong in March
Apr 12th, 2017 @ 9:16 PM by Amber Nelson
Small banks and institutional investors approved more U.S. small business loan applications in March , according to data from the Biz2Credit Small Business Lending Index, although approval rates fell among credit unions and alternative lenders.
Small banks – those with less than $10 billion in assets – approved 48.9 percent of all small business loan applications last month, up from 48.8 percent in February. Small banks, which specialize in Small Business Administration loans, have approved close to half of all their applications for the past two years. “We are seeing more small businesses taking advantage of SBA loan programs,” said Biz2Credit CEO Rohit Arora. “SBA-backed loans are popular with small business owners and lenders because of the mitigated risk involved for those financing the loan products. As a result, this has become a popular vehicle for entrepreneurs to leverage in order to get access to funding.”
Institutional lenders had an approval rate of 63.6 percent in March, an all-time high, and the third increase in the last four months. “The strong values of the stock market and U.S. dollar continue to attract a high volume of investors from all over the world,” said Arora. “While there isn’t cause for alarm yet, the Fed’s plan to start reducing bonds on its balance sheet could result in diminishing liquidity for institutional lenders.”
Approval rates at big banks – those with more than $10 billion in assets – were unchanged at 24.1 percent, another record high. Big banks may start to approve more small business loans in the near future if the Fed keeps raising interest rates and shedding its bonds. This will provide a greater profit margin for them on those loans, making them more attractive to make.
Loan approval rates fell with alternative lenders and credit unions. Alternative lenders approved 58.2 percent of all applications in March, down from 58.4 percent in February. Approval rates have declined for nine straight months with these types of lenders. Credit union approval rates fell to 40.7 percent from 40.8 percent the month before. It is now at its lowest rate to date. Both types of lenders are suffering from losing their competitive advantages. Credit unions have not kept up with online technology and other lenders are now processing loans with the same speed as alternative lenders, leaving both without much to attract the most credit-worthy borrowers.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.