If you’re in the market for a small business loan, the news appears to be improving, especially at the big banks where credit tightening has been the norm since the financial crisis.
Big banks are now approving one-in-five small business loan applications, a post-recession high, according to Biz2Credit’s monthly analysis of 1,000 loan applications for June 2014.
Meanwhile, small banks may be down slightly in approval rates (by two-tenths of a percent), but they are granting more than half of all requests they get from entrepreneurs.
Small business loan approval rates at big banks ($10 billion-plus in assets) rose to 20 percent in June from 19.6 percent in May. Approval rates at small banks slipped to 51.4 percent from to 51.6 percent last month.
“The strong return of banks in small business lending indicates three things: overall improving economy, entrepreneur confidence that they will be able to borrow for expansion and repay the loans, and the increasing ease and popularity of SBA lending,” explained Biz2Credit CEO Rohit Arora, who oversaw the research. “This is a sign that the economy continues along the right path.”
Biz2Credit also reported that approval rates by credit unions and alternative lenders were relatively unchanged, while institutional lenders continued slow but steady growth in approval percentage.
In June, loan approval rates at credit unions improved slightly to 43.7 percent from 43.6 percent in May, while approval rates by alternative lenders slipped for the fifth consecutive month to 63.2 percent in June, from 63.3 percent in May.
Biz2Credit analyzed loan requests ranging from $25,000 to $3 million from companies in business more than two years with an average credit score above 680.
“Higher EBITDA (earnings before interest, taxes, depreciation, and amortization) that small businesses are showing in their financial documents substantially increases their chances of securing conventional financing,” Arora said. “They are using this funding for upgrades such as building and equipment purchases. The types of purchases that small business owners are making are an excellent sign for the U.S. economy.”