Small Business Loan Approvals at Banks Hit Record Highs

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Approval rates for small business loan applications rose to another post-recession record (27.7%) at big banks ($10 billion+ in assets), while also climbing above 50% at small banks in July, according to the latest Biz2Credit Small Business Lending Index™.

The back of the US one dollar bill. photo credit: Getty Getty

This news comes on the heels of an announcement by the Federal Reserve last month that indicated interest rates would actually decline for the first time in years. If ever there was a time to apply for small business funding, now would be that time.

Small business lending remains strong and is growing at big banks and at regional and community banks. Entrepreneurs who have a good credit history are having success in securing capital in 2019. Small bank approvals of small business loan applications inched up one-tenth of a percent to 50.1% from 50% in June. More than half of the applicants who apply at small banks for funding, usually SBA loans, are getting the funding. SBA loans are certainly an important part of the mix.

“The U.S. Small Business Administration (SBA) is the largest economic development agency in the world,” says SBA New York District Director, Beth Goldberg. “With an annual credit line of more than $30 billion allocated by Congress, SBA guaranteed loans help bridge the gap between small businesses that lenders might turn away and those who are able to start or grow companies with financing.”

Goldberg adds that through the end of June, 2019, SBA had guaranteed $20.6 billion nationwide in small business loans. More-than $650 million of this went to firms in her district, which encompasses New York City, Long Island, and seven counties of the Lower Hudson Valley.

Meanwhile, the Labor Department’s Jobs Report released on August 2, reported that non-farm employment increased by 164,000 in July, while the unemployment rate remains at 3.7 percent. The U.S. Bureau of Labor Statistics noted that significant job gains occurred in professional and business services, health care, and social services.

While the Jobs Report numbers slightly exceeded expectations, small business owners are expressing concerns about a tariff war with China, which could cause them to reconsider holiday season hiring and expansion plans. On the other hand, the Federal Reserve cut interest rates for the first time in 11 years last week, which lowers the cost of capital for borrowers. Overall, rates are attractive right now.

Small business loan approval rates among alternative lenders dropped three-tenths of a percent to 56.8% from 57.1% in June. The renewed strength of bank lending to small businesses has negatively impacted alternative lenders. High quality borrowers can get cheaper money at banks, but those with mediocre credit histories may still find that alternative lenders are the only ones who will fund them. Alternative lenders help business owners that the banks reject.

Credit unions fell below the 40% mark in July for the first time since Biz2Credit began analyzing small business loan approval percentages in 2011. Currently, credit unions are approving 39.9% of loan applications, which represents a record low point.

Credit unions are still hurt by the Member Business Lending cap (12.25% of their assets), the aggressiveness of other categories of lenders, and by a lack of digitization. Right now, there is not a lot of momentum in credit unions’ small business lending.

Entrepreneurs in search of small business financing are getting positive responses from banks both large and small. If you have decent credit scores and a solid business plan, capital for expansion and growth are certainly accessible. Businesses that cannot qualify from traditional lenders are also finding non-bank alternatives. It is a good time for small business borrowers.

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