Banks approved a greater portion of small-business loan applications in June compared with last year, an indicator of an improving economy, according to a Biz2Credit study issued this week.
Big banks, defined as those with assets of more than $10 billion, approved 20% of small-business loans in June, the study says. This approval percentage was more than three percentage points higher than a year earlier.
Meanwhile, banks with less than $10 billion in assets accepted more than half of the loans requested by small businesses, the study shows. Small banks approved 51.4% of small-business loans applications in June, up from 49.8% a year earlier.
"The strong return of banks in small-business lending indicates three things: [an] overall improving economy, entrepreneur confidence that they will be able to borrow for expansion and repay the loans, and the increasing ease and popularity of [Small Business Administration] lending," Rohit Arora, the chief executive of Biz2Credit, an online loan marketplace, said in the study.
Approval rates by credit unions and alternative lenders were said to be basically unchanged from June 2013. Credit unions approved 43.7% of small business loan requests in June, an uptick of one percentage point. Alternative lender approvals dropped only two-basis points to 63.2%.
Institutional lenders granted 59.2% of the funding requests they received in June, up one basis point from the previous month. Biz2Credit started tracking institutional lenders, which consist of insurers, credit funds, family funds, and other nonbank financial institutions, in January.
"Entrepreneurs are getting funding from banks at attractive interest rates," Arora said. "They no longer need to borrow at any cost."
The Biz2Credit study analyzed 1,000 loan requests ranging from $25,000 to $3 million from businesses opened at least two years that have an average credit score above 680.