Posted by: John Tozzi on June 13, 2011
Banks rarely make public how many loan applications they deny. A new survey by researchers at Pepperdine University suggests that lenders are approving slightly more business loans than they did in the last year. The majority of loan requests are still rejected. Bankers reported denying 60 percent of business loan applications, down from 67 percent from Pepperdine’s previous two surveys released six months and one year ago. (The 60 percent loan rejection rate was the median of 72 banks that responded to questions in March.)
Most business loans were rejected because of concerns about borrowers’ earnings, cash flow, or collateral. Three quarters of banks responding agreed with the statement that they felt more pressure from regulators to avoid making bad loans. Of those, about 61 percent agreed that pressure from regulators caused them to deny loans they would have otherwise approved. It’s not clear what time period this refers to, however, and Pepperdine hasn’t asked the question in the past.
The survey also indicated that loan demand is increasing. A net 53 percent of banks reported more businesses seeking funding than six months earlier. It’s hard to draw any firm conclusions from these responses. If banks are seeing increased loan demand, and they’re approving more applications, that should eventually lead to expanding business credit. Federal data suggests the total amount of business loans outstanding is still shrinking, at least among loans under $1 million.