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Small Banks, Alt Lenders Continue SME Lending Slump

Biz2Credit’s most recent monthly analysis of small business lending in the U.S. was released last week, and the statistics show booming SME financing among the nation’s big banks.

The February 2015 Biz2Credit monthly analysis revealed that small business loan approval rates ticked up yet again and reached a new post-recession record in February. Major financial institutions with at least $10 billion in assets approved more than one-fifth (21.5 percent) of SME loan applications, the research found, up from 21.3 percent the previous month. This marks the 10th month of consistent Big Bank SME loan approval rates in the last 11 months, Biz2Credit reported.

Year-to-year analysis revealed that Big Bank small business lending has improved by 12.5 percent. Biz2Credit CEO Rohit Arora offered insight into why this trend is happening.

“Big banks are starting to grant more conventional loans,” Arora said. “This allows them to keep fixed loan expenses down compared to SBA-backed loans, which are not primarily being done at smaller banks.”

Small business lending rates are increasing elsewhere, too. Biz2Credit’s report also found that institutional lenders approved 60.7 percent of loan applications in February, up slightly from a 60.5 percent approval rate in January. According to Biz2Credit, institutional lenders have increased their loan approval rates every month since this survey began one year ago.

One reason for this upswing, Arora said, is big banks’ increasing investment in new technology. “The investment in digitization at big banks has helped expedite the small business loan approval process,” the CEO said. Similarly, institutional lenders also invest in technology, “which enables them to quickly asses the risk of default,” Arora said. “Thus, they are incredibly efficient.”

Small business lending was not up everywhere, however. Small banks reported another drop in SME application approval rates, denying more than half of requests and reporting a 49.6 percent application acceptance. This is the fourth-consecutive drop in small business loan approval among small banks, Biz2Credit said.

Similarly, alternative lenders also decreased their small business lending in February. Merchant cash advance companies, factors and other alternative lenders reduced their SME financing for the 13th month in a row, Biz2Credit found, with a 61.4 percent approval rate, down from 61.6 percent in January.

According to Arora, the rise of institutional lenders has hit hardest within the alternative lending market. “Alternative lenders have been impacted most by the emergence of institutional players,” the CEO said. “As the economy continues to improve, small businesses with good credit standing don’t have to borrow money at high interest rates often associated with alternative lenders.”

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