If small businesses are the motor of the economy, small banks are providing much of the gas.
This is good news for entrepreneurs still trying to dig out from the recession, or looking for cash to grow that doesn’t come with the higher interest rates charged by alternative lenders.
A look at the numbers shows that small bank loan approval rates rose to 51.6 percent, compared to 51.4 percent in February. Meanwhile, big bank approvals dipped to 18.8 percent, compared to 19.1 percent in February.
The reasons for the big bank pullback are three-fold. First, big banks have more challenging underwriting standards and they may be waiting for 2013 tax returns from businesses. The harsh winter has also wrought havoc on business sales as customers stayed home and businesses themselves pulled in and perhaps sought fewer loans. Lastly, banks haven’t done a good job automating their loan processes, so it slows down their loan approvals.
However, smaller banks have responded to regulators and altered their small business lending strategies, bolstering their commercial and industrial loans, and turning away from more speculative commercial real estate loans. They’ve also benefitted from the Small Business Administration’s Advantage loans of up to $350,000, the guaranteed portion of which they can easily sell on the secondary market. Big banks, by contrast, are less interested in these smaller loans.
Alternative lending also fell, to 63.6 percent compared to 63.9 percent in February. In December of 2013, alternative lending approvals were as high as 67.3 percent, according to Biz2Credit reports.
If you have questions, or if borrowing is part of your plans, please feel free to contact us.