Small Business Loan Approval Rates Among Banks Continue to Rise
There’s more good news for small business owners looking to raise capital: approval rates for small business loans continued to rise in September. According to Biz2Credit‘s Small Business Lending Index, banks both large and small approved more of the loan applications they received in September than they did in August. Furthermore approval rates have also shown year over year gains as well.
Starting with big banks — defined as those institutions with assets in excess of $10 billion — approval rates rose two-tenths of a point in September, climbing from 26.5% in August to 26.7%. More impressively, that’s up nearly two full points from the 24.8% approval rate marked in September 2017. Speaking to this month’s report, Biz2Credit CEO Rohit Arora said, “There was a lot of pent-up demand in the marketplace. With the continuous rate hikes by the Federal Reserve, banks are making more money when they lend because their spreads are up.” Arora went on to note, “Additionally, there is demand in secondary market for these loans. People are trying to borrow money now before the rates go up further.”
When it comes to smaller banks, not only are approval rates also on the rise but they also continue to outpace their larger counterparts by a wide margin. In September small banks approved 49.9% of small business loan applications, bringing them closer to the milestone 50% figure. This month brought a one-tenth of a point increase over August’s rate and shows steady growth from the 49.1% approval rate observed this time last year. In fact September’s figure is the highest noted since October 2014. As Arora points out, one reason for the continued rise is that small banks are processing a record number of government-backed SBA loans, which mitigate the institution’s risk.
Not to be left out, credit unions are also approving a high number of small business loan applications — although growth has been stagnant. Despite a one-tenth of a point increase over August 2018 approvals, the 40.3% approval rate is identical to the one seen in September 2017. Finally approvals among institutional lenders fell from 64.9% in August to 64.5% in September. This marks the first time approval rates have decreased among the sector since June 2016.
Looking forward, Arora had some mixed predictions for where the small business lending market is going. He noted, “Overall, I would say that this positive lending atmosphere will last until interest rates go up another 50 to 75 basis points.” However, he then added, “Next year, the impact of the tax cuts may slow a bit. At some point, lending will start weakening, but probably not until middle to late 2019.”
Although rising interest rates may have some business owners thinking twice about taking out a new loan, the upside is that approval rates for said loans continue to rise. Moreover, with banks and credit unions often offering better rates than some alternatives, entrepreneurs may still be able to save money on their loans even with the Fed hikes. With optimism still high and small businesses continuing to expand, expect demand for these loans to increase as well.
Also published on Medium.