NEW YORK—Small banks continue to cut back on small business lending, according to the November Biz2Credit Small Business Lending Index.
The study shows that small banks are denying more than half of their small business loan requests. The percentage of loans granted by small banks slipped for the sixth consecutive month to 49.8% from 50.2% in October.
"Many of the smaller banks are starting to feel the squeeze of failing to adapt to their competition integrating technology," said Biz2Credit CEO Rohit Arora. "More credit-worthy borrowers are turning to big banks and institutional lenders because of their increased willingness to lend and the simplicity of getting financing from these lenders.”
Meanwhile, credit unions granted 43.4% of small business loan applications in November, a slight drop over the approval rate of 43.5% last month as they continue to struggle making a wider presence in the small business finance marketplace, explained Biz2Credit.
The report also indicates that small business loan approval rates at banks with $10 billion in assets and above bounced back in November to 20.8%, after a setback month in October. In October, big banks granted 20.4% of loan requests.
“Big banks have better name recognition and are offering more attractive rates than their smaller competitors. They continue to show their commitment of lending to qualified small business owners,” said Arora, who oversaw the research. “Meanwhile, their commitment to investment into digitization is paying off as more borrowers seek to do business via smartphones and tablets. Big banks have increased their loan approval rates by 20% over the last year.”
Credit funds, insurance companies, family funds, and other non-bank financial institutions granted 59.9% of the funding requests they received in November, a slight increase from 59.7% in October. Approval rates by institutional lenders have increased each month since Biz2Credit began monitoring this category of lenders in January 2014.
“Institutional lenders continue to capitalize on the decreasing demand of short-term loans," Arora said. "They are taking quality borrowers and market share from small banks."
At the same time, approval rates at alternative lenders—merchant cash advance companies and other non-bank institutions—slipped for the tenth consecutive month to 62% in November, from 62.1% in October.
The Biz2Credit Small Business Lending Index is derived through monthly analysis of 1,000 loan applications on Biz2Credit.com.
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