B2B Payments

Institutional Investors Drive SMB Lending Market

As the economy grows, SMBs are seeing an uptick in growth momentum, which is being backed by institutional investors who are increasingly approving loans with an approximate rate of about 61.7 percent last month.

The institutional lenders approved growth rate increased from 61.4 percent in June, according to Biz2Credit, which analyzed an approximate 1,000 loan applications.

“In the last few months as banks and institutional investors have gotten more aggressive in the marketplace, alternative lenders like cash advance and MCA players have become less competitive,” said Biz2Credit CEO Rohit Arora.

Though lending approval rates for alternative lenders followed closely at 61 percent, it remained mostly flat and hit an index low last month.

As institutional lending approval rates climbed, alternative lending approval rates have seen a steady decline since January this year, Biz2Credit reported.

At the same time, big banks continued to show an increase in SMB loan approval rates for the ninth month with a 22.4 percent approval rate, which increased from 22.19 percent in June this year.

On the other hand, by denying more than half of the loan applications, the approval rates at small banks dropped by 0.1 percent for the ninth consecutive month, bringing down the rate to 49.2 percent in July.

“The trend clearly shows that big banks are getting more aggressive in the small business lending space and are starting to invest money in digitizing their loan offerings,” Arora said. “We have seen more instances of banks coming back in asset-backed lending, as well as commercial real estate lending markets, and less so in working capital as of now.”

The decline in approval rates at small banks stems from more creditworthy businesses choosing to seek loans from big banks and institutional investors for easier terms and quicker access to credit, Arora explained.

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