Big banks are reporting an increased appetite for lending to small businesses and, in doing so, they are slowly stealing market share from smaller lenders.
Financial institutions with at least $10 billion of assets approved 19.4% of small business loans last month, according to Biz2Credit's monthly index of business lending trends. The April approval rate for big banks, up 6 basis points from the previous month, was the highest recorded by Biz2Credit since the New York firm began tracking monthly lending data in January 2011.
Rohit Arora, Biz2Credit's chief executive, attributed the spike in approvals from big banks to "pent-up demand" in the marketplace.
"Retailers are buying inventory, and restaurants are upgrading their outdoor seating in preparation for the summer," Arora said in a news release. He also said that large banks not relying as heavily on Small Business Administration loans as they have in the past because more established businesses that don't need SBA loans are borrowing again.
"Big banks make speedier decisions on non-SBA loans, which take a long time to process. That is a major reason for the jump in approval rates by big banks," Arora added.
The spike in approval rates at large banks appears to be coming at the expense of small lenders; loan approvals at small banks, alternative lenders and credit unions all decreased during April compared to March, Biz2Credit said in its report issued Tuesday.
Banks that have less than $10 billion of assets approved 51.1% of small business loan applications in April, down 5 basis points from the prior month. The April decrease was attributed to small banks not processing SBA Express loans as quickly as in March, Arora said.
Credit unions approved the fewest amount of small business loans in the three-year history of the Biz2Credit Index, down to 43.5% in April.
Small-business lending from alternative lenders dropped for the fourth straight month. Alternative lenders approved 63.5% of loans for small businesses during April, as they are having trouble competing with banks and institutional lenders, which can offer these borrowers cheaper interest rates.
Institutional lenderscredit funds, insurance companies, family funds, and nonbank financial institutionsgranted 58.3% of the funding requests they received in April, which is two basis points higher than March.
The Biz2Credit Lending Index monthly survey analyzes 1,000 loan applications ranging from $25,000 to $3 million from companies that have been in business for at least two years. The companies included in the index have an average credit score above 680.