Big Banks, Investors OK More Small Business Loans

Big banks and institutional investors picked up the pace of loan approvals for small businesses in January, while small banks and alternative lenders continued to see their approval rates decline, according to a monthly lending index.

Banks with more than $10 billion in assets granted 21.3% of small-business loan requests in January, according to the Biz2Credit Small Business Lending Index. That figure was 3.5 percentage points greater than a year earlier.

"Big banks set another index high because they are willing and able to take large loans and still have an interest rate advantage over competitors," Rohit Arora, chief executive of Biz2Credit,  said in a news release Tuesday. "The big banks typically seek to grant loans in excess of $2 million."

Meanwhile, institutional lenders granted 60.5% of small-business owners' loan requests in January, up four percentage points from a year earlier when the New York-based online marketplace started tracking that lender category.

"Institutional lenders are making longer term (5-year) loans and giving them larger amounts—up to $1 million," Arora said. "Their approval rates are higher because the investments they have made in technology enable them to act quickly and minimize risk."

Though they approved 61.6% of applications in January, alternative lenders have seen their approval rates drop for 12 consecutive months. Additionally, small banks—those with less than $10 billion in assets—are denying more than half of their small-business loan requests. In January, small banks approved 49.6% of their loan applications, the eighth consecutive month their approval rates have declined.

"Small banks cannot compete with the brand name advantages and low rates of big banks. Small banks can't make decisions as quickly, and borrowers are going elsewhere," Arora said.

The Biz2Credit study analyzed 1,000 loan requests of $25,000 to $3 million from businesses opened at least two years that have an average credit score above 680.

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