NEW YORK — Credit unions approved a slightly higher percentage of small business loans last month, as approval rates ticked up to 43.6% in March from 43.3% the previous month.
But a monthly analysis of 1,000 loan applications found that lending approval rates by credit unions were down nearly 5% year-over-year, according to the Biz2Credit Small Business Lending Index.
Small business loan approval rates at big banks (those with $10 billion or more in assets) dropped to 18.8% in March, down from 19.1% in February. In a year-to-year comparison, lending approval rates at big banks increased nearly 20%.
"Big banks rely on tax data to process non-SBA loans," said Biz2Credit CEO Rohit Arora. "Since tax season is always a busy time of the year for CPAs who are preparing tax returns, they have less time to pull together statements for business owners seeking loans. This slows the loan application process. Big banks typically process more conventional loans from larger firms than SBA Loans, which are more popular with companies that need less than $350,000."
Small business loan approval rates at small banks increased to 51.6% in March, up from 51.4% in February. Small bank lending approval rates have increased for the third consecutive month and in four of the last five months, Biz2Credit noted.
"The SBA Express and Small Business Loan Program are becoming increasingly popular among small banks," said Arora, who oversaw the research. "These types of loans are 85% guaranteed by the SBA, and there are no guarantee fees, which makes them very appealing to small banks."
Arora said credit unions are increasingly planning to adopt SBA Express Loans.
"If they do not become involved in SBA loans, the real likelihood is their small business lending will continue to slide," Arora added.
Alternative Lenders' Share Dropping
Approval rates at alternative lenders decreased for the third consecutive month to 63.6% in March from 63.9% in February. Biz2Credit said alternative lenders are starting to feel the squeeze from banks and institutional lenders, which are attracting higher quality borrowers that are willing to shop around.
"As economic conditions continue to improve, more creditworthy borrowers elect to seek funding from traditional lenders, such as banks and institutional lenders, which offer lower interest rates," Arora said. "Small company owners want to avoid daily payments that cash advance firms charge on short-term loans. The effective interest rate can approach 30% to 40%. That is too high for most businesses."
