Bank SME Lending Surges, Alt-Lenders Flop

Marketplace lending platform Biz2Credit has published its latest small business lending index, and the numbers signal rough waters ahead for alternative finance.

Reports Tuesday (Dec. 13) said Biz2Credit’s latest index showed surges in traditional banks’ SME loan approval rates in November, hitting 23.7 percent. According to researchers, eight out of the past nine months have seen loan approval rates for small business applicants increase among traditional, large banks.

Even small banks have seen their loan approval rates tick up to 48.8 percent.

Biz2Credit CEO Rohit Arora said the technology that banks have invested in over the last year is paying off.

“Advances in analytics enable them to approve a higher percentage of loans, while lowering loan default rates,” he noted. “When the Fed decides to increase the interest rates, I expect that loan approval rates will continue to improve gradually as it will become more profitable for them to lend.”

At the same time, Biz2Credit found continuing declines in alternative lending activity for SME borrowers. November saw a decline in SME loan approval rates among alt-lenders, down to 59.2 percent in November, according to the report.

Arora cited CAN Capital’s recent struggles as one example of how doubts are surfacing over the future of alt-lending.

“CAN Capital, one of the largest and oldest players in alternative lending, has stopped lending money and replaced CEO Dan DeMeo,” he noted. “Alternative lenders have lost favor because of the high rates they charge. Meanwhile, they lost much of their competitive advantage of the speed of their decision-making as other types of lenders continue to invest in technology to expedite the loan approval process.”

Looking ahead, the election of Donald Trump, who is in favor of repealing Dodd-Frank, could bring new business to banks — especially smaller ones — that have been limited by regulations, Arora said. A scaling back of Dodd-Frank could enable these smaller banks to continue to increase their SME lending activities.