In a sign of growing optimism about the economy, community banks, credit unions and other lenders approved more small-business loan applications in January than in any other month during the past year.
Large banks, too, approved more loan requests in January than in prior months, though their overall percentage of approvals is well below that of other lenders, according to an analysis of lending trends released Thursday by Biz2credit, a New York firm that matches borrowers with lenders.
Banks with less than $10 billion of assets approved 47.5% of applications for loans between $25,000 and $3 million, up from 43.5% in January 2011, while credit unions approved 57.6% of applications, up from 48.9% a year earlier. Meanwhile, alternative lenders — including community development financial institutions, micro-lenders and accounts-receivable lenders — approved 62.4% of loan applications, compared to 49.3% a year earlier.
Rohit Arora, Biz2Credit's chief executive, said in an interview Thursday that the rise in approval rates indicates that lenders are growing more confident about the state economy.
Borrowers are also gaining confidence, as indicated by a surge in the volume of applications. Arora said that the volume of applications in January was 35% higher in than in December, compared to a 21% jump in the December-January period a year earlier. (January is typically a busy month for loan applications as businesses look to replenish inventories following the holiday season.)
Among all banks, large banks remain the most cautious when it comes to small-business lending. According to Biz2Credit, banks with $10 billion or more of assets approved just 11.7% of application, well below pre-crisis levels of 40% to 44%, Arora said.
On the bright side, that approval rate was the highest for large banks since February 2011 and significantly above the 9.7% approval rate just a month earlier.
Arora said that, for now, small banks, credit unions and alternative lenders are largely meeting a need that big banks are not. As economic conditions improve, though, Arora predicts that larger banks will be looking to steal back some of that business.
"Traditional banks will all be under pressure to come back to the marketplace," he said.