Small businesses obtained more loans from banks of all sizes compared to a month earlier month in another sign that the economy is gradually improving.
Banks with at least $10 billion in assets approved nearly a fifth of their funding requests, according to Biz2Credit. The rate was a slight improvement from April.
Approval rates at banks with less than $10 billion in total assets, considered to be small banks, increased to 51.6% from 51.1% a month earlier.
"Small-business owners are confident and are investing in the expansion of their businesses," says Rohit Arora, chief executive at Biz2Credit. "Lenders are getting applications from more established businesses that are showing three years of profitability. At the same time, big banks are hungry to make loans, in part because the mortgage lending remains stagnant and because lending to solidly performing small businesses is less risky than it was during the recession."
Alternative lenders approved fewer small-business loans for the fifth straight month, down to 63.3% in May from 63.5% a month earlier.
Institutional lenders are taking away market share from alternative lenders, approving 59.1% of their funding requests in May. This figure is up from 58.3% in April. Institutional lenders include insurers, credit funds, family funds, and other nonbank financial institutions.
"They are gathering momentum as a category of small business lender as company owners to borrow larger sums of money at cheaper interest rates," Arora says.
Credit unions continue to lag behind in the small business lending marketplace, as loan approval rates increased slightly, to 43.6%.