The scarcity of credit for small businesses has been one of the big stories of the last few years, so it came as welcome news last week that small business lending went on the upswing in September, and in a big way. According to the small business lending index compiled by loan broker Biz2Credit, small business loan applications increased by 5.6 percent in September, whereas approval rates from big banks jumped by a whopping 30 percent.
In the years following the great recession, the big lenders – defined as those with more than $10 billion in assets, such as Bank of America, Citibank and Chase – have been viewed as the main holdouts when it comes to giving small business owners access to credit. The September statistics would seem to indicate that this trend is finally reversing in a significant way.
The Biz2Credit Index indicates that 14.2 percent of loan requests were approved by the big banks in September. While that might sound like a low approval rate, it’s a big improvement from August’s approval figure of just 10.9 percent. As slowly as the economic recovery in the U.S. seems to be proceeding, conditions have apparently improved enough to make the big lenders more willing to extend credit to their small business customers.
Small and alternative lenders have to some extent been filling the credit void created by the big institutions’ reluctance to lend to small businesses. While loan approval rates from small banks are still much higher than those of the big banks, those approval rates actually decreased from August to September by 0.2 percentage points. Approvals by credit unions, considered one of the “good guys” that kept business credit flowing when the big banks slowed their lending to a drip, also dipped slightly by half a percentage point, the fourth consecutive monthly decrease.
So-called alternative lenders, such as accounts receivable-based financers, merchant cash-advance lenders, Community Development Financial Institutions (CDFI) and microlenders, continue to have the highest approval rates for loans to small business – 64.6 percent In September, the highest rate ever recorded by the small business lending index.
This good news about improved small business credit conditions comes at a good time, when many small businesses are looking for loans to finance their preparation for the all-important holiday shopping season.
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