One thing that’s critical for growth in a capitalistic economy and that’s capital. Small businesses, which have created two out of three new jobs in this country in recent years, are the ones with big capital needs. The good news is that big banks and institutional lenders are stepping up.
In 2017, approval rates from these financial institutions hit record highs, according to the latest small business lending index from online lending marketplace Biz2Credit, which analyzed more than 1,000 small business loan applications.
“The economy is performing well on many different levels. End of year retail sales were up, unemployment remains low, and salaries have gone up a notch,” said Rohit Arora, chief executive of Biz2Credit, as part of a report on the index.
Smaller – regional and community banks – approve around 49 percent of their funding requests from small businesses. That level is still slightly behind the 50 percent level reached back in October, 2014, but historically strong. The reason for the strong performance among smaller banks is mostly due to the continued support of guarantees from the Small Business Administration, where smaller banks are most active.
“This bodes well as we enter a new year,” Arora said as part of the update. “It is helpful for young entrepreneurs, who might not have credit scores high enough for a traditional bank loan, that SBA-backed loans are available through big banks and smaller ones.”
The big banks’ approval rate of 25 percent of small business loans represents a record high. What’s even more eye-opening is that institutional investors like pension funds have an approval rate of more than 64 percent – another historical high.
Credit unions continue to be a significant part of small business financing options, although the technology offered by their banking competitors is having an effect on their market share. Online and alternative financers also have a high approval rating, but their loans come with steeper interest costs.
Of course, all of these lending sources will look hard at a company’s historical financials and collateral as part of the approval process and most continue to be very risk averse. But there’s no question that the small business financing environment is strong – and will hopefully fuel investment and growth in 2018.