Small Banks and Institutional Lenders Climb, Credit Union Lending Remains at Post-Recession Low, Alternative Lending Stalls Again
NEW YORK, June 11, 2019 (GLOBE NEWSWIRE) -- Approval rates for small business loan applications remained at a record high of 27.5% at big banks ($10 billion+ in assets) in May, while the approval percentage climbed yet again at small banks, which reached 49.9%, according to the Biz2Credit Small Business Lending Index™ released today.
“Bank approvals of small business loans are as high as they have ever been in the 21st century’s post-recession era,” said Biz2Credit CEO Rohit Arora, who oversees the monthly research derived from more than 1,000 small business credit applications on his company’s online lending platform. “The economy is strong, which bodes well for small businesses searching for capital.”
Small bank approvals of small business loan applications climbed one-tenth of a percent from 49.8% in April to 49.9% in May.
“SBA lending is a big part of small business loan-making by small banks,” Arora explained. “Small banks are approving nearly half of the loan requests they receive. This bodes well for entrepreneurs.”
Meanwhile, in the Jobs Report released on June 7, the Labor Department reported that employment increased by 75,000 in May, while the unemployment rate remained at 3.6 percent. The U.S. Bureau of Labor Statistics reported job gains in professional and business services and in health care.
The NFIB Small Business Optimism Index increased in April, the last month reported by the NFIB, to a historically strong level. Profits are still trending upwards, and expectations for sales, business conditions, and credit conditions all improved, according to the NFIB Small Business Optimism Index.
Institutional lenders climbed two-tenths of a percent to a 65.5% approval rate, up from 65.3% in April.
“Institutional lenders are an excellent source for small business financing, and are continuing to play in increasing role in the small business lending marketplace,” Arora explained.
Loan approval rates among alternative lenders dropped one-tenth of a percent to 57.1% in May, down a notch from 57.2% in April.
“Because the banks are lending aggressively and can offer better rates and terms, alternative lenders have declined slowly but steadily this year,” Arora said. “The banks receive applications from higher quality borrowers, and they offer lower interest rates because default rates are so low at the moment. This is, in part, due to improvements in data analytics among lenders that offer digital online applications.”
Credit unions again stayed at a record low 40.1% of loan applications in April.
“Credit unions are looking for ways to expand, including partnering with the SBA on small business loans,” said Arora, who oversees the Biz2Credit research.
According to a recent Federal Reserve report, credit unions are usually not considered the first option for small businesses in need of capital or other financial services. In fact, the National Credit Union Administration (NCUA) and the SBA recently signed a deal aimed at increasing SBA lending by credit unions. The two organizations plan webinars and other events in hopes of expanding credit unions’ role in small business lending.
“Partnering with the SBA is a good step for credit unions. However, they still are lagging in digitization, which hurts them,” Arora explained. “More importantly, credit unions are still handcuffed by the Member Business Lending cap, which limits their loan approvals to 12.25% of their assets. Until this changes – if it ever changes – credit unions will continue to struggle in small business lending.”
About the Biz2Credit Small Business Lending Index
Biz2Credit analyzed loan requests ranging from $25,000 to $3 million from companies in business more than two years with an average credit score above 680. Unlike other surveys, the results are based on primary data submitted by more than 1,000 small business owners who applied for funding on Biz2Credit's online lending platform, which connects business borrowers and lenders.
Founded in 2007, Biz2Credit has arranged more than $2 billion in small business financing and has several times been named to Crain’s New York’s Fast 50 and was recently ranked among the top 200 fast-growing companies on Deloitte's 2018 Technology Fast 500. Biz2Credit is expanding its industry-leading technology in custom digital platform solutions for leading banks and other financial institutions, investors and service providers in the U.S. Visit www.biz2credit.com or follow Biz2Credit on Twitter: @Biz2Credit, Facebook, and LinkedIn.
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