Big Banks Said to Get More Generous on Small-Business Loans

Big banks and institutional lenders approved small-business loans at record rates in May, according to data from Biz2Credit.

Big banks OK'd 21.9% of small-business loan applications, up from 21.7% in April and 19.6% in May 2014, according to the Biz2Credit Small Business Lending Index released this week. Approval rates have increased for seven consecutive months at big banks.

That May figure is the highest since the last recession started, according to Rohit Arora, the chief executive of Biz2Credit, an online marketplace for small-business loans. Yet he also warned that the trend could soften.

"Low interest rates continue to prevail," Arora said in a news release accompanying the research results. "Lending to businesses remains to be a profitable component of bank portfolios when the loan amounts are substantial. Thus, it is a good time to borrow. Conditions won't stay like this forever."

Similarly, institutional lenders boosted approval rates to 61.3% from 61.1% in April. May also became the first time in the Index's history that institutional lenders had a higher approval rate than alternative lenders such as merchant-cash-advance companies or factoring firms.

Alternative lenders approved 61% of applications, down from 61.1% in April.

Conversely, small banks saw their approval rates drop in May to 49.5% from 49.6% a month earlier. Loan approval rates have fallen at small banks in 10 of the past 12 months.

Technology is part of the problem, Arora said.

"Small banks often are not technologically equipped to get loans done fast," Arora said.

Credit unions' approval rates edged up to 43.1%, from 43% in April.

Biz2Credit's index is based on a survey of more than 1,000 small-business owners who applied for loans through its online lending platform.

For reprint and licensing requests for this article, click here.
Consumer banking M&A
MORE FROM AMERICAN BANKER