News Column

Loan Approvals for Small Businesses Jumped in May

June 10, 2014

Staff Reports --

Small-business lending got a boost in May (file photo)
Small-business lending got a boost in May (file photo)

Small business lending approval rates jumped at banks and credit unions in May, according to the Biz2Credit Small Business Lending Index.

Approvals increased slightly at credit unions, but lost ground in the small-business lending marketplace over the past year.

Meanwhile, the record high post-recession approval percentages at banks coincide with a five-month drop in approval rates by alternative lenders, which typically charge higher interest rates in return for quick decisions and a willingness to fund riskier deals.

"The results of this month's index show that the economy continues to rebound," said Rohit Arora, CEO of Biz2Credit, who oversaw the research. "Small businesses are increasingly willing to find expansion capital and are now more likely to receive funding from banks, which typically offer lower interest rates than other lenders."

Small-business loan approval rates at banks with more than $10 billion in assets rose to 19.6 percent in May, up from 19.4 percent in April, while approval rates at small banks jumped to 51.6 percent from 51.1 percent from last month, according to a news release.

Both figures are record highs for bank lending to small businesses reported in's monthly analysis of 1,000 loan applications.

"Big banks are approving nearly one out of every five funding requests, and small banks are granting more than half," Mr. Arora said, adding that it's a sign of an improving economy.

Big banks "are hungry to make loans, in part because the mortgage lending remains stagnant and because lending to solidly performing small businesses is less risky than it was during the recession," he said.

That translates to confidence among small-business owners, prompting them to invest in expansion.

Small businesses "are seeking SBA loans, as well as non-SBA loans, which take a shorter period of time to approve, have less restrictions and more flexibility, and sometimes offer better interest rates," Mr. Arora said.

Credit unions, meanwhile, had their best showing all year, "but they continue to lose ground in the small-business lending marketplace," Mr. Arora said.

Alternative lenders continue to lose ground as banks and institutional lenders attract higher-quality borrowers unwilling to pay the higher interest rates demanded by cash advance companies.

"As the economy improves, businesses are able to get funding from traditional sources, and they are less desperate," Mr. Arora said. "We are starting to see a flight away from short-term, high-cost money, such as cash advances."

Institutional lenders granted 59.1 percent of the funding requests they received in May, up from 58.3 percent in April. These institutions include insurance companies, credit funds, family funds, and other yield-hungry, non-bank financial institutions, which typically offer more competitively priced loan options than alternative lenders in amounts up to $1 million.

Institutional investors are gathering momentum as small-business lenders "as company owners (look) to borrow larger sums of money at cheaper interest rates," Mr. Arora said.

For more stories on small businesses and entrepreneurs, please see HispanicBusiness' Entrepreneur Channel

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