Big Banks Continue to Loosen Credit for Small Business Loans
Mar 18th, 2015 @ 10:26 PM by Amber Nelson
Small businesses are finding more and more success getting loans with large banks while smaller lenders are finding it harder to keep up, a sign of big banks’ ability to keep pace with changing technology.
The Biz2Credit Small Business Lending Index reported that big banks approved 21.5 percent of all small business loan applications in February, a new record high since the Great Recession. That’s up from the previous high of 21.3 percent in January. Compared with a year earlier, the loan approval rate is up 12.5 percent. February also marks the eleventh of twelve months of loan approval rate increases.
Small banks, on the other hand, have been trending the other way. In February, small banks approved less than half of all the applications received with a rate of 49.6 percent. It is unchanged from January but signifies the fourth month that the approval rate has been below 50 percent. Small banks have been approving fewer and fewer loans over the past eight months.
Biz2Credit believes the difference is partly due to big banks outpacing smaller ones when it comes to adapting to new technology.
“Big banks are starting to grant more conventional loans,” said Biz2Credit CEO Rohit Arora in a statement. “This allows them to keep fixed loan expenses down compared to SBA-backed loans, which are not primarily being done at smaller banks. The investment in digitization at big banks has helped expedite the small business loan approval process.”
And small business are turning increasingly to outside sources as well for loans. Institutional lenders approved 60.7 percent of all applications received, an increase from January’s 60.5 percent.
“The high approval rate in this category of lenders is a reflection of their strong investment in technology advancements, which enables them to quickly assess the risk of default,” Arora explained. “Thus, they are incredibly efficient; only a miniscule 0.77 percent of loans made by institutional lenders on our platform have defaulted.”
The Biz2Credit Small Business Lending Index is based on a monthly analysis of 1,000 loan applications made on Biz2Credit.com
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.