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Biz2Credit Small Business Lending Index Shows Rise in Approvals by Big Banks

January 10, 2013, 07:18 AM
Filed Under: Economic Commentary

Small business loan approval rates at big banks ($10B+ in assets) in December 2012 increased to 14.9%, a figure representing a 13 percent jump from the previous month of November, according to the Biz2Credit Small Business Lending Index, a monthly analysis of 1,000 loan applications on The 14.9% approval rate at big banks is the highest recorded by the Biz2Credit Small Business Lending Index and marks a significant jump from the 13.2% approval rate in November and the 9.7% figure of December 2011.

"After a hiccup in November, big banks are coming back strong into the small business lending game," said Rohit Arora, Biz2Credit co-founder and CEO, who oversaw the research. “When we look at how difficult it was to secure capital from large banks a year ago, we can see just how much the lending landscape has improved during all of 2012."

Small bank approval rates also increased in December, climbing to 49.8% from 49.2% in November 2012. A year-to-year comparison indicates that the small bank approval rate in December 2012 was also up from the figure of December 2011, which was 47.1%.

Credit union approvals of small business loans slipped again from 48.4% in November to 47.6% in December 2012. Small business lending approvals rates at credit unions have now dropped in seven consecutive months.

"We are seeing that large and small banks are stepping up in small business lending, while credit unions continue to slide. Many credit unions have not modernized their procedures and still request small business owners to come into their offices and become members before considering loan requests," Arora explained. "Traditional banks are better at automating the lending process and are showing that they are more willing to make small business loans than they were 12 months ago.

Small business loan approvals by alternative lenders – accounts receivable financers, merchant cash advance lenders, Community Development Financial Institutions (CDFI), microlenders, and others – dipped for a second straight month. In December 2012, alternative lending approval rates dropped to 63.8%, down from 64.5% the previous month.

"As banks opened up the spigots, lesser quality borrowers approached alternative lenders for money. Although alternative lenders are known for their speed and flexibility, the drop in their approval rates seem to indicate they are doing their due diligence and rejecting applicants deemed too risky," Arora said.

Biz2Credit analyzed loan requests ranging from $25,000 to $3 million from companies in business more than two years with an average credit score above 680. Unlike other surveys, the results are based on primary data submitted by more than 1,000 small business owners who applied for funding on Biz2Credit’s online lending platform, which connects business borrowers with more than 1,100 lenders nationwide.

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