January and February are typically sluggish months for lenders with many small business owners experiencing slow growth until the spring. However, small business owners will be encouraged by the latest lending figures, which clearly indicate an increase in loans to small businesses over the previous 12 months.
Loan approvals have increased 4% year on year according to the latest Thomson Reuters/PayNet Small Business Lending Index for January. PayNet compiles its figures from new loans issued to small businesses by lenders and now maintains a database of over 21 million contracts representing well over $1 trillion in small business loans.
Lending is down month on month, although this is to be expected as many small businesses took out loans in the run up to the holiday period to take advantage of sales opportunities in the run up to Christmas, and January typically sees fewer loan applications made.
Figures show a 1.4% increase in outstanding loans to small businesses from the previous year, raising the total outstanding to $287.6 billion. There has also been a decrease in small business delinquency, which has fallen by 12% on loans between one and three months overdue.
Banks are also reporting increases in small business lending. Wells Fargo bank stated it has increased small business lending by 18% over the course of the past 12 months, with many smaller banks also reporting increases in loan approvals into double figures.
The 4% increase in traditional small business loan approvals is certainly a step in the right direction and positive news, although there is clearly a long way to go before small business lending levels reach pre-recession levels.
For many people however, traditional finance methods are still unavailable due to tighter controls on lending now making it much harder for small business owners to secure business working capital without 3 years solid accounts and a low debt to income ratio, and it can be difficult to convince lenders of the viability of a new business and convey its true potential.
Traditional lenders are still shying away from providing bad credit business loans with these only available from alternative lenders. While the banks were prepared to take more risks in the past, it is clear that this is no longer the case. Many business owners are choosing to bypass the banks altogether and go straight to alternative lenders for unsecured small business loans, as while loan approvals are on the rise, finance is rarely provided quickly enough due to the long winded application process with traditional lenders.
It also appears that many banks are favoring larger businesses seeking higher loan amounts as these provide banks with the greatest profit and lower risk, yet some banks are beginning to be more flexible with small business loans by offering longer payment terms.