Small-business loan approvals rise as unemployment falls

Approval rates for small-business loan applications ticked up at both small and large banks in May.

Banks with at least $10 billion of assets approved almost 26% of small-business loans last month, according to the Biz2Credit Small Business Lending Index. That is almost triple the rate in 2011 and up almost two percentage points from the approval rate a year earlier.

The smaller institutions, with less than $10 billion of assets, approved 49.4% of applications, which was up from 48.8% a year ago.

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Approval rates were on the rise as unemployment fell to an 18-year low and average hourly wages increased almost 3% from May 2017, Rohit Arora, CEO of Biz2Credit, said in a press release this week.

“There were also large increases in manufacturing, transportation and warehousing jobs. The U.S. economy is strong right now,” Arora said.

Small-business lending is also becoming “a very important asset class for institutional lenders,” Arora said in the press release. These investors, which include pension funds and insurance companies looking for high yields, approved 64.7% of applications in May. That is up almost a percentage point from a year earlier.

However, approval rates from other lenders declined from a year earlier. Alternative lenders have been on a downward trend, slipping every month for almost two years except for a small uptick in November. These lenders approved 56.4% of applications in May, which is down from 57.7% a year earlier.

Approval rates for credit unions dropped to 40.1%, a decline from 40.5% a year ago, according to the lending index.

The index analyzed more than 1,000 credit applications from small businesses to various lenders.

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