Banks with at least $10 billion in assets are becoming more aggressive when it comes to giving out small business loans, but the group still approves credit at a much smaller rate than its competitors, a Biz2Credit study found.
Small business loan approval rates at big banks rose to 20.1% in July, more than two and a half percentage points higher than a year earlier, according to the study by Biz2Credit, an online loan marketplace. The larger banks are using their advantages with branding and technology to be more efficient players in small business lending, said Rohit Arora, chief executive officer of Biz2Credit, in the monthly report.
Although banks with more than $10 billion in assets showed highest year-over-year growth in the report, the approval rate was still well below smaller banks, credit unions and alternative lenders.
The lending approval rates for small banks, classified as having less than $10 billion in total assets, increased 150 basis points from a year earlier, to 50.9%. However, approval rates decreased from June by 50 basis-points.
Alternative lenders and credit unions both distributed fewer small business loans this July than the previous year. Approval rates at alternative lenders decreased for the sixth consecutive month, to 62.9%, compared to 63.2% a year earlier. Credit unions accepted 43.5% of the loans requested by small businesses, down from 45.1% last July.
Meanwhile, institutional lenders granted 59.3% of the funding requests they received this July. Since Biz2Credit starting tracking this group in January, institutional lenders have continuously approved more small business loans than the prior month.
"Institutional firms have roared into the small business segment and created fierce competition for other so-called alternative lenders," Arora said. "This competition is lowering the price of alternative lending products, which is good news for borrowersparticularly those whose credit scores are not high enough to qualify for loans from traditional banks."
The Biz2Credit study analyzed 1,000 loan requests ranging from $25,000 to $3 million from businesses opened at least two years that have an average credit score above 680.