Small-business owners heard "no" more often in July when seeking loans from big banks after six months of improving prospects.

Approval rates for small-business loans at banks with $10 billion or more in assets dropped 20 basis points from June to 23.1%, according to the Biz2Credit Small Business Lending Index. The reading had gradually risen each month from January (when it was at 22.7%) through June.

Credit unions and alternative lenders reined in credit, too, while small banks and institutional lenders were more generous.

Slower global growth hurt big banks the most, said Rohit Arora, the chief executive at Biz2Credit, an online marketplace for small-business loans.

Approval rates at credit unions fell 10 basis points from June to 41.5%; it was credit unions' lowest reading in the history of the index and marked 14 consecutive months of decline. The nonprofit lenders have lagged behind in utilizing digital technology, which has significantly slowed the loan process, Arora said.

"Borrowers prefer to receive the funding from their loan requests as quick as possible, and thus are opting [for] competing categories of lenders from whom they can receive funding faster," Arora said in a news release Tuesday.

Alternative lenders have cut back on approvals for four out of the past five months, including a percentage-point decline in July to 60%, according to the index. These nonbank financial institutions have steadily lost favor among small-business borrowers, mostly because they charge higher interest rates, Arora said.

Approval rates at smaller banks rose 10 basis points to 48.9% in July, and institutional lenders' rates increased 10 basis points to 62.8%.

Arora noted that smaller banks made good use of lower-risk Small Business Administration loans.

"The current state of the global market doesn't have as much influence on small banks as it does with big banks," he said. "They filled the void in July when the big banks skidded a little bit."

The Biz2Credit Small Business Lending Index is a monthly analysis of more than 1,000 small-business loan applications that range from $25,000 to $3 million from companies in business more than two years and with an average credit score above 680.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.