NEW YORK—Lending approval rates for small business loans at credit unions declined for the ninth time in the last 10 months, according to the Biz2Credit Small Business Lending Index.
"Credit unions are losing market share and higher credit-quality borrowers due to their failure to adequately adapt to the technological advancements in the industry,” said Biz2Credit CEO Rohit Arora. “Borrowers seek speed and convenience; many credit unions are lacking in the digital department and this has resulted in their decline in popularity.”
Meanwhile, lending approval rates improved to post-recession highs at both big banks ($10+ billion in assets) and institutional investors, which became major players in small business finance during 2015, the company stated. In addition, small business lending approval rates at big banks are more than twice as high as they were four years ago when only 9.7% of funding requests were granted (+136.08%).
“As the U.S. economy has steadily improved, big banks and institutional lenders are more frequently granting loan requests,” Biz2Credit stated. “Additionally, small banks saw an increase in December loan approval rates in what has been an up-and-down year. Meanwhile, loan approvals at credit unions and alternative lenders continued to slow despite encouraging developments in the economy.”
Lending approval rates at institutional lenders experienced a slight uptick in December, improving 62.5% from 62.4% in November, Biz2Credit reported.
"We are seeing increasing interest from international funds seeking higher-yield investments,” said Arora. “Institutional lenders have reduced the risks on these types of investments through digital algorithms that have automated the loan approval process and global investments are becoming more mainstream. With the weakening of emerging markets and strong value of the U.S. dollar, we are anticipating more international funds to enter the small business finance mix.”
Big banks approved 22.9% of small business loan approvals in December, an increase by one-tenth of one percent in November.
“The big banks have maintained their aggressive approach to lending to small businesses and with the adoption of the Federal Reserve's interest rate hike, I expect they will be even hungrier to grant loan requests,” explained Arora. “The adoption of technological advancements on the digital platforms of big banks has streamlined the loan application process and has resulted in lower chances of loans defaulting, thus increasing profitability and a higher volume of loan approvals.”
Lending approval rates at small banks improved to 49.1% in December, from 48.9% in November.
"Small banks are approving more small business loans under the SBA loan program, which reduces the risk assumed by lenders,” added Arora. “These are low-risk, low-reward types of loans and have resulted in the increase in loan approvals over the last month.”