Big Banks See Benefit of Small Business Loans
Sep 17th, 2014 @ 7:39 PM by Amber Nelson
For the third straight month, the nation’s largest banks have approved small business loans at a record high rate, according to Biz2Credit.com. This is great news for U.S. entrepreneurs who have seen icy business credit conditions since the Great Recession.
The Biz2Credit Small Business Lending Index – from a survey of 1,000 small business loan applications – found that big banks approved 20.4 percent of all loans submitted in August, a new all-time high and up from 20.1 percent in July. Compared with one year ago, the approval rate is up a whopping 15 percent among big banks (those with more than $10 billion in assets.)
So what’s causing banks to thaw their credit standards? “As the economy has improved, and the optimism of small business owners seems to be strong, entrepreneurs are willing to invest in their growth potential,” explained Biz2Credit CEO Rohit Arora. “Big banks are aggressively pursuing small business loan-making and are attracting higher quality customers from competitors.”
Smaller banks were not able to approve quite as many loans in August as they did in July, with a 50.6 percent approval rate last month, down from 50.9 percent. Credit unions approved 43.4 percent of all small business loans in August, also falling from July when the rate was 43.5 percent. Yet obviously the approval shares are much higher with these smaller, local institutions, meaning small business owners still have the best shot of being approved with their community lenders.
Another growing source of funding for small business loans comes from institutional investors – defined as insurance companies, credit funds, family funds, and other yield-hungry, non-bank financial institutions. These groups approved loans at a rate of 59.4 percent in August. “Institutional investors are quickly becoming important players in small business lending, and they are taking market share from alternative lenders,” said Arora. “Meanwhile, the interest rates charged by non-bank lenders continue to drop. This benefits entrepreneurs in search of capital.”
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.