Big Bank Loan Approvals for Small Firms Hit High

A monthly survey of approval rates finds large banks granted almost one in four small business loan applications in May.
Katie Kuehner-HebertJune 8, 2016

Large banks approved loans to small businesses at a record pace in May, while alternative lenders’ approval rates continued to decline, according to a new survey.

In its latest monthly review of small business loan applications, online marketplace Biz2Credit found that approval rates at banks with $10 billion or more in assets rose one tenth of a percent to a new all-time index high of 23.2%.

Big banks approved 6% more funding requests on average from a year earlier — the seventh time in the last nine months that they increased approval rates.

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“Big banks have demonstrated their commitment to small business lending over the last two years with investments in automation that have resulted in higher profit margins,” Biz2Credit chief executive Rohit Arora said in a news release.

Approval rates at institutional lenders rebounded from their first drop in over two years. The one-tenth of a percent gain to 62.8% matched an all-time index high.

But alternative lenders took yet another hit in May, approving 60% of small business loan requests on average. Over the past two and a half years, the sector’s approval rate has dropped significantly from 67.3% in December 2013.

In other sectors, loan approval rates dropped at small banks to 48.7% in May 2016, matching a two and a half year low and the fourth decline in the last five months.

Credit unions continued their long decline in loan approval rates, granting a new all-time index low of 41.7% in May, down two tenths of a percent from April. Approval rates have declined at credit unions every month in the past year.

“As big players such as J.P. Morgan and Wells Fargo expand in small business lending, it continues to negatively impact small banks,” Arora said. “When lenders invest in technology, small business owners can now receive funding in a matter of days. This has led to higher quality borrowers gravitating to the larger financial institutions.”

If the Federal Reserve decides to increase interest rates at its meeting next week, Arora expects approval rates at big banks to continue to surge.