The Return of Big Banks to Small Business Lending

During a month in which the overall volume of loan applications increased by 5.6 percent, the Biz2Credit Small Business Lending Index, my company's monthly analysis of 1,000 loan applications on Biz2credit.com, revealed that approval rates jumped 30 percent at big banks during in September 2012.

The Index found that 14.2 percent of funding requests were approved by big banks ($10B+ in assets) in September—a 30 percent jump from 10.9 percent in August 2012. The figure represents the highest approval rating percentage for big banks since Biz2Credit began the Index in 2011.

Banks including Citibank, Sovereign Bank, and Citizens Bank are getting back into small business loans. The economy seems to be improving slowly, and the improvement has been a factor in their willingness to lend to small companies. This is a good sign.

Meanwhile, small bank lending approvals dipped slightly from 47.8 percent in August to 47.6 percent in September. The loan approval rate of credit unions dropped for a fourth consecutive month in September down to 52.4 percent from 52.9 percent in August. The September figure represented the lowest credit union approval rate since June 2011.

Alternative lenders—accounts receivable financers, merchant cash advance lenders, Community Development Financial Institutions (CDFI), micro lenders, and others – continue to make an impact on small business lending. In September, alternative lenders approval rates rose slightly to 64.6 percent, up from 64.5 percent in August. The 64.6 percent approval rate was the highest recorded since the Biz2Credit Small Business Lending Index began.

Alternative lenders offer greater flexibility, quicker approvals, and more competitive lending rates than they ever have before. This type of financing is very helpful for small and mid-size businesses that encounter short-term cash flow issues. Restaurants and retailers, in particular, find this type of financing attractive as they look to the fourth quarter to be profitable than other parts of the year. Many businesses are seeking short-term working capital to prepare for the upcoming holiday season.