TLDR: Approval rates by alternative lenders slip, while lending by institutional investors climbs.
Earlier this year we looked at a report from the Federal Reserve which hinted at the possibility that banks are increasingly starting to compete for the business of entrepreneurial borrowers. That’s great news for small businesses and startups because more competition means higher loan approval rates and that’s exactly what the latest report from Biz2Credit suggests is going on in 2014. Indeed, Biz2Credit’s monthly update showed that small business loan approval rates remain elevated at traditional financial institutions and declined at alternative lenders. Specifically, big banks ($10 billion+ in assets) approved 18.80 percent of all small business loan applications in March, a slight decline from February’s 19.10 percent multi-year high but still at least a full percentage point higher than any other month in the past year. Further, small bank approval rates improved to 51.60 percent from 51.40 percent while credit unions approved 43.60 percent of all small business loan applications, the highest level since December of last year. Naturally, with traditional financial institutions approving more small business loan applications, the pool of borrowers being rejected and sent to alternative lenders is even poorer in quality than before which is why it isn’t too surprising that the approval rate at alternative lenders declined to just 63.60 percent, the lowest level since September of last year. More from the report, “”Big banks rely on tax data to process non-SBA loans. Since tax season is always a busy time of the year for CPAs who are preparing tax returns, they have less time to pull together statements for business owners seeking loans. This slows the loan application process,” explained Biz2Credit CEO Rohit Arora, one of the nation’s leading experts in small business lending. “Big banks typically process more conventional loans for larger firms than SBA Express Loans, which are more popular with companies that need less than $350,000.” “The SBA Express and Small Business Loan Programs are becoming increasingly popular among small banks,” said Arora, who oversaw the research. “These types of loans are 85 percent guaranteed by the SBA, and there are no guarantee fees for the borrowers, which makes them very appealing to small banks.” “As economic conditions continue to improve, more creditworthy borrowers elect to seek funding from traditional lenders, such as banks and institutional lenders, which offer lower interest rates,” Arora said. “Small company owners want to avoid daily payments that cash advance firms charge on short-term loans. The effective interest rate can reach up to 30-40% which is too high for most businesses…””
