January Biz2credit Report Shows Increase in Small Business Loan Approvals
Lending figures from January show small business loan approval rates having increased year on year with the big banks having approved more small business loan applications this January than in any of the past three years, according to the Biz2Credit Small Business lending index. Biz2Credit samples 1000 loan applications each month in a survey that has been running for the past three years.
Big banks – those with more than $10 billion in assets – have seen an increase in non-SBA loan applications from small business owners in recent months. Small business loan applications had an approval rate of 17.8% in January; an increase of 0.2% since December and a 2.5% increase since the same time last year.
The survey data includes applications for loans of between $25,000 to $3 million, by businesses older than two years with a credit score average over 680. The survey excludes startups and new businesses which typically struggle to obtain approval for finance from both large and small banks, instead choosing alternative vendor financing loans to provide unsecured business funding. The approval rates are far higher, with rapid processing of loan applications and cash in a matter of days.
Commercial truck financing and restaurant equipment financing options remain limited, with the majority of traditional lending institutions requiring at least 2 or 3 years of accounts before considering a loan application. Alternative lenders have been able to fill this gap and provide merchant cash advances and bad credit business loans, with many small business owners taking advantage of the service.
There has also been a rise loan approval rates for alternative finance companies over the same period, with loan approvals having increased from 63.7% in January 2013 to 64.1% in January 2014
Small banks – under $10 billion in assets – also show an increase in approval ratings year on year. Small banks tend to process a much higher percentage of SBA loan applications, which have higher approval rates, although take considerably longer to process and involve considerable amount of paperwork. Small business loan approvals are up 1% year on year, with a 2.2% increase from December 2013.
Over 99 percent of the 27 million companies based in the U.S. are small businesses, which are responsible for generating the jobs to employ around half of the workforce in the USA. While it is positive news that loan approval rates are increasing, big banks are still declining over 80% of applications with approximately half of applications declined by smaller banks.
The outlook for 2014 is more promising that in recent years. Some lending restrictions are expected to be eased, although at present there is still a long way to go, and for many small businesses, improvements in the lending climate cannot happen fast enough.