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Banks put the brakes on small-business lending in October as the government shutdown shuttered the Small Business Administration and the Internal Revenue Service.
November 12 -
Refer credit-challenged mom-and-pops to nonbank lenders and eventually those small businesses will be viable enough to qualify for bank loans, industry experts say.
October 25 -
Banks tightened their small-business lending in September after three months in which they approved more loans, a slowdown that could reflect banks' anxiety over the government shutdown.
October 9
Big banks stepped up small business lending at the end of 2013, according to the Biz2Credit Small Business Lending Index released Wednesday.
Banks with more than $10 billion in assets approved 17.6% of small business loans in December. That's an all-time high since the index began in January 2011, up from 17.4% the previous month. The approval rate at big banks was 14.9% in December 2102.
"Increasingly, creditworthy borrowers are applying for small business loans at big banks and having them approved," Biz2Credit Chief Executive Rohit Arora said in a press release. "Big banks, which request proof of three years of profitability, are now receiving applications from companies whose fortunes increased from 2011 to 2013."
He added that big banks are also benefiting from an increase in demand for loans not backed by the Small Business Administration.
Borrowers are opting for non-SBA loans from big banks because these loans require less paperwork and generally are granted faster than SBA loans.
As big banks approved a higher percentage of small business loan applications, smaller banks' approval rates fell slightly. Loan approval rates at lenders with under $10 billion of assets dropped to 48.7%, down from 49.7% in November and 49.8% a year earlier.
The falloff in SBA-backed loans also diminished the number of applications small banks approved in December, according to Arora.
"Smaller banks... process a lot of SBA loans," Arora said in the release.
Credit unions also approved fewer loans in December. Approval rates dipped to 43.9%, declining from 44.5% the previous month. Approval rates at alternative lenders rose to 67.3%, up from 67.2% in November and another all-time index high.
"Alternative lenders picked up the slack from the SBA slowdown and are offering more lucrative terms to borrowers," Arora said. "Thus, borrowers are more willing to go to them for funding. More players continue to enter the marketplace, including yield-hungry investors such as insurance companies to get into the small business lending game. Technology savvy players who make the online loan application process quick and easy will continue to do well in 2014."
The monthly Biz2Credit Small Business Lending Index analyzes 1,000 loan applications ranging from $25,000 to $3 million from companies that have been in business for more than two years. The companies included in the index have an average credit score above 680.
