While big bank loan approval rates ticked upward in February, institutional and alternative lenders still do the heavy lifting when it comes to small business finance, Biz2Credit’s Small Business Lending Index for February reveals.
Biz2Credit has conducted the monthly analysis of more than 1,000 small business loan applications since 2014.
Big banks approved 22.8 percent of funding requests last month, a 10 basis point increase from January. Small banks approval rates dropped 10 points, but a 48.9 percent they are more than twice as high as their larger cohorts.
Credit unions are not taking advantage of available technology to solidify their role in the marketplace. Their February approval rate of 42.1 percent is the lowest in the index’s history.
“Credit unions are not doing much to improve their small business lending, namely they are not investing in technology,” Biz2Credit CEO Rohit Arora said. “Thus, credit unions face challenges in competing for credit-worthy borrowers.”
Institutional lenders continue to see growing approval rates as stock market volatility forces them to look elsewhere for growth opportunities. They approved 62.7 percent of February requests.
“Institutional lenders continue to make an impact in small business lending,” Mr. Arora said. “We expect to see more international funds enter the marketplace in search of higher yields — especially with growing uncertainty in global emerging markets.”
High interest alternative lenders continue to approve fewer requests as lower risk sources get financing elsewhere. They approved 60.8 percent of requests.
“Alternative lenders typically offer loan products at high interest rates,” Mr. Arora explained. “The businesses that resort to borrowing money from them when they have low credit scores and fewer options.”
Looking ahead, the small business financing outlook is positive, Mr. Arora said.
“The stock market is still relatively volatile, and there is uncertainty in the marketplace for lenders. Overall, it is still a good time for businesses to borrow money.”