Dip in Loan Approval Rates During March Is a Cause for Concern

Small business loan approvals by big banks (more than $10 billion in assets) dropped to 10.9 percent in March, down from 11.7 percent in February.  This number represents a 6.8 percent decline over a one-month period and from the 11.6 percent approval rate one year ago. 

According to the Biz2Credit Small Business Lending Index that my company produces  monthly, small bank lending was flat at a 47.6 percent approval rate, alternate lenders were up 0.5 percent to a 63 percent approval rate, and loans made by credit unions increased ever so slightly—just 0.1 percent—to a 57.9 percent approval rate.

Big banks are always cautious, particularly when the economy is slow. The March jobs report was disappointing, showing that only 120,000 new jobs were created in the economy, which was a figure significantly short of rosy estimates of up to more than 300,000 jobs. Meanwhile, rising oil prices make both borrowers and lenders nervous. So while the availability of small business financing has improved over the past 12 months, the flow of capital seems to be slowing, which is a cause of concern.

Big banks loan parameters are tight, and they approve loans at a lower rate than other categories of lenders, despite advertising that they are very active in small business lending.

Lenders of all types had been steadily increasing the number of funding approvals for small business owners during the past year. The momentum of the past few months appears to have slowed, and business owner optimism has dipped. However, I am still cautiously optimistic that this is a temporary blip and not the start of a slowdown similar to what happened in the second quarter last year when lending stalled after a strong first quarter.

The good news is that credit unions and alternative lenders continue to approve more than 50 percent of loan requests, and small bank lending remains strong.