Small business loan approval rates for big banks (25.9 per cent) continued the upswing with yet another new high in May 2018, according to the Biz2Credit Small Business Lending Index released this week. The monthly analysis examined more than 1,000 credit applications from small businesses on the Biz2Credit platform.
Big banks (assets of $10 billion-plus) are granting nearly three-in-ten small business loan applications, according to Biz2Credit figures. The May approval percentage, up two-tenths of a per cent from April’s figure, represents a post-recession high point for big banks.
“May was another strong month for banks as they have benefitted from the overall strength of the economy,” said Biz2Credit CEO Rohit Arora, who oversees the monthly report. “The unemployment rate hit an 18-year low, and average hourly pay rose 2.7 per cent from a year prior. Notably, the Labor Department reported employment in construction continued on an upward trend in May with more than 25,000 new jobs created. There were also large increases in manufacturing, transportation and warehousing jobs. The U.S. economy is strong right now.”
Small business loan approval rates rose at regional and community banks. Small banks granted 49.4 per cent of the funding requests they received in May, up two-tenths from April. It represents the highest figure for small banks since May 2015.
“Small banks make a lot of SBA loans, which help small businesses expand. Many of these companies are involved in manufacturing, transportation, and construction,” Mr. Arora explained. “Small businesses involved in those sectors need capital for growth, and smaller banks are now granting nearly half of their loan applications”
Institutional lenders set yet another new Index record approval percentage, 64.7 per cent, up one-tenth of a percent from April. These lenders (pension funds, insurance companies, and others), have become important players in small business lending.
“Institutional investors are seeking high yields, and small business lending,” Mr. Arora added. “Foreign investors are continuing to become involved. Small business lending is becoming a very important asset class for institutional lenders, who are able to offer funding at reasonable interest rates and term lengths.”
Loan approval rates among alternative lenders remained at 56.4 per cent from April. Approval percentages have slipped every month for almost two years, with the exception of a small uptick in November 2017.
“Even in a robust economy, there are still companies that don’t qualify for traditional small business loans because they have not been in business long or have poor credit histories,” Arora explained. “Alternative lenders fill this niche; they are willing to provide funding, albeit at higher interest rates.”
Credit unions approved 40.1 per cent of loan applications in May, a one-tenth of a per cent drop from April, which had set a record low for the Biz2Credit Small Business Lending Index.
“Credit union lending to small business has stagnated,” Arora said. “Not much has changed for them in the past couple of years.”