By Rieva Lesonsky
Are you seeking expansion capital for your small business? If you’ve been turned down by a big bank for a small business loan in the past few years, the results of the most recent Biz2Credit Small Business Lending Index should bring a glimmer of hope. Biz2Credit found that small business loan approval rates at big banks (with assets of over $10 billion) reached 15.9 percent in February, an increase from 15.3 percent in January.
The monthly index, which measures small business loan approval rates from a variety of lenders, says big banks’ approval rate of small business loans represents a 35 percent increase over last February’s approval rate of just 11.7 percent. It’s the highest small business loan approval percentage by big banks since Biz2Credit launched its Index more than two years ago.
The picture is getting rosier at small banks as well. Small bank approval rates for small business loans increased to 50.3 percent in February, up from 49.9 percent in January and 47.6 percent in February 2012. This was the first time in four months that small banks approved more small business loans than they rejected. “Smaller banks are making more and more loans through the SBA’s Small Loan Advantage Program, which range in amounts from $50,000 to $350,000 and require little collateral,” said Biz2Credit CEO Rohit Arora.
Clearly, though, the big news is with big banks. While smaller banks’ approval of small business loans held fairly steady during the past few years, big banks were holding back. Biz2Credit’s data show big banks are increasing their approvals of smaller loans between $50,000 and $500,000. These are the types of loans small businesses often need, but that big banks often feel aren’t profitable enough for them to make.
With big banks’ approval hard to come by in the past few years, small businesses have been turning to alternative financing sources, such as accounts receivable financers, merchant cash advance lenders, Community Development Financial Institutions (CDFI) and microlenders. These lenders’ approval rates remained high in the latest Index–63.7 percent, the same rate as in January.
One type of lender that’s hurting: credit unions. Credit unions’ approval rates soared in late 2011 and early 2012, but in the past 9 months they have rejected more than half of loan requests by small business owners. In February, their approval rate hit 45.9 percent, down from 46.9 in January. Overall, small business loan approvals by credit unions have dropped more than 20 percent since February 2012. It seems that as bigger banks become more aggressive, credit unions are lagging behind.
The changes point up the need for small business owners to be flexible in terms of where and how they seek financing. Many small business owners were burned when big banks called in their loans or slashed their lines of credit during the depths of the recession. If that was you, do you feel comfortable working with a bigger bank this time around, or would you continue to work with smaller lenders or credit unions?