Financing

An Uptick in Small Business Loans from Big Banks


An Uptick in Small Business Loans from Big Banks

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A common complaint in the years since the financial crisis began has been that Wall Street banks that were bailed out by the federal government haven’t been lending enough to Main Street businesses. Critics may now have a little less reason to beef, however, because last month big banks approved small business loans at the highest rate in more than two years, according to an index compiled by a business-lending middleman.

Biz2Credit, which Bloomberg Businessweek profiled in October, calculates its monthly Small Business Lending Index using 1,000 loan applications made over its online lending platform. The index defines large banks as those with $10 billion or more in assets; it also includes data for small banks, credit unions, and alternative lenders. Biz2Credit doesn’t break out lenders by name in its data.

The findings: Big banks approved 15.9 percent of the small business loan applications in the index, up from 15.3 percent in January 2013 and 11.7 percent in February 2012. February’s big bank approval rates were the highest since Biz2Credit began compiling the index in January 2011. Small bank approval rates have also ticked up, to 50.3 percent of loans in February, up from 49.9 percent in the previous month and from 47.6 percent in February 2012.

Biz2Credit Chief Executive Officer Rohit Arora pointed to a handful of reasons for higher approval rates: A stable economy over the past 18 months has given banks an historical basis for making loans, and attractive premiums on securities backed by Small Business Administration-guaranteed loans are giving banks greater incentive to work with small businesses.

The banks’ need to maintain larger capital bases under Dodd-Frank regulations may also be driving higher approval rates as lenders seek to retain customers. “Big banks are starting to say, ‘If I keep turning away deposit customers when they come to me for loans, we will lose a lot of the good deposit relationships going forward,’” says Arora.

If there’s a loser in the banks’ uptick, it may be credit unions. Their loan approval rates in the Biz2Credit index fell for the ninth straight month. One explanation, says Arora, is that with banks, small and large, granting more small business loans, credit unions are receiving applications from shakier credit profiles. Another likely reason for the decline: Credit union lending is capped at 12.25 percent of a credit union’s assets, as Credit Union National Association Executive Vice President Paul Gentile told Bloomberg Radio’s Pimm Fox yesterday.

Clark is a reporter for Bloomberg Businessweek covering small business and entrepreneurship.

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