Small Business Loan Approvals Top Record High
Aug 7th, 2019 @ 8:54 PM by Amber Nelson
Big banks are approving a post-recession record high share of small business loan applications, according to the Biz2Credit Small Business Lending Index, while credit unions are approving fewer than ever.
Big business loan applications were approved at a rate of 27.7% in July by big banks – those with $10 billion or mores in assets. Among small banks, 50.1% of loans were approved, up from 50% in June.
Small and big banks are able to put more money in the hands of small business owners as the overall economy continues to plug along. On August 2, the U.S. Labor Department reported that 164,000 non-farm jobs were added, keeping the unemployment rate at just 3.7%.
And this past week, the Federal Reserve lowered its target interest rate, pushing most other rates down as well. Lower interest rates make borrowers less expensive and more appealing to small business borrowers.
Alternative lenders approved 56.8% of their small business loan applications in July, down from 57.1% the month before. As small and big banks have increased their approval rates, alternative lenders have lost some of their business. However, as alternative lenders are willing to finance borrowers without stellar credit, there will always be a market need for their services.
Small business loan approvals also decreased among credit unions. For the first time in the eight years since the Biz2Credit began its survey, credit unions loan approvals have dropped below 40%. In July, they only said yes to 39.9% of all applicants, a record low. Biz2Credit notes that credit unions are facing stiff competition from other lenders and they are falling behind in developing digital products that make the application process easy for borrowers. Credit unions are also hampered by the Member Business Lending cap, a law passed by Congress back in 1998 that limits them from lending more than 12.25% of their assets to small businesses.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.