Big banks and institutional investors were more generous in granting small-business loans in August, while their smaller competitors turned slightly stingier, according to a Biz2Credit study.
Banks with assets of $10 billion or greater approved 20.4% of applications for small-business loans, up from 17.6% a year earlier, the New York-based online loan marketplace provider said in its monthly lending index released Tuesday.
Institutional investors granted 59.4% of the loan requests they received in August. This figure is up nearly three percentage points from January when Biz2Credit first started tracking approval rates for institutional investors, which include credit funds, insurance companies, family funds, and other nonbank financial institutions.
Smaller banks, credit unions and alternative lenders reported year-over-year declines in issuing loans to small businesses, but their approval rates are still much higher than large banks'.
The percentage of loans granted by small banks dipped 10 basis point to 50.6%. Meanwhile, credit union approvals fell approximately 2 percentage points, to 43.4%, and alternative lenders fell 40 basis points, to 62.7%.
Market conditions and technology are said to be instrumental in the upswing among the larger lenders.
"Big banks are utilizing their brand recognition and their investment in technology that makes processing of non-[Small Business Administration] loans more swift and efficient," Rohit Arora, the chief executive of Biz2Credit, said in a press release. "Big banks are aggressively granting small-business loan requests and are attracting higher quality customers from competitors."
Institutional lenders are becoming an important player in small-business finance because they are charging low interest rates, which Arora said is "beneficial to entrepreneurs in search of capital."
"The financial health of small businesses has improved over the last 12 months thus creating a demand for more reasonably priced, longer-term products which institutional players can provide," Arora said.
The Biz2Credit study analyzed 1,000 loan requests of $25,000 to $3 million from businesses opened at least two years that have an average credit score above 680.