NEW YORK — Small business loan approvals at credit unions continued to fall during January, while the approval rates at banks of all sizes continues to rise.
That's according to the latest Biz2Credit Small Business Lending Index, which revealed a 3.5 percentage point decline in credit union business lending approvals between January 2013 and January 2014. The index found CU approval rates at an all-time low of 43.4%, as lending approval rates saw declines in 16 of the last 20 months, leading to a nearly 25% drop in that period.
Approval rates at big banks (17.8%) and small banks (50.9%) saw slight increases in January, though the big banks saw 15% growth (a two-point increase) during the past year, whereas smaller banks' (under $10 billion) approval rates grew slightly (just 2% year-over-year), but recovered from a five-point drop during the fall during the government shutdown.
"Increasingly, creditworthy borrowers are applying for small business loans at big banks and having them approved," Rohit Arora, Biz2Credit CEO, said in a statement. "Big banks, which request proof of three years of profitability, are now receiving applications from companies whose fortunes increased from 2011-2013."
The report also found that alternative lenders — which Biz2Credit says were the biggest benefactors of the government shutdown last October — saw a 3% drop in approvals, which Arora says may indicate "a return to normalcy for alternative lenders. While they offer speed in their decision-making, alternative lenders charge higher rates than others. As banks have become more aggressive in small business lending, the higher-quality borrowers seem to be going to them."
One new category to the Biz2Credit Small Business Lending Index is "Institutional Investors" — such as credit funds, insurance companies and other non-bank financial institutions offering loans up to $1 million. The report found institutional investors have a 56% approval rate on small business loan applications.
"Institutional investors have emerged in small business lending and offer interest rates that generally fall somewhere between the rates offered by banks (around 6%) and alternative lenders that charge up to 30-50%," Arora said. "As more institutional lenders come into the marketplace, it provides greater amounts of long-term, stable money to the marketplace. Borrowers can get better products at attractive interest rates and terms."
