During the so-called “credit crunch,” banks essentially turned off the spigot of funding for small businesses. However, banks are now approving a higher percentage of loan applications than at any time since the Great Recession.
Big banks ($10 billion+ in assets) approved 19.6% of the loan applications they received in May 2014, up from 19.4% in April. Meanwhile, small banks approvals jumped to 51.6% from 51.1% in April. This is good news for small business owners and for the economy overall.
Why is this important?
Small business owners are confident and are investing in the expansion of their businesses. They are seeking SBA loans, as well as non-SBA loans, which typically are approved quickly with fewer restrictions and attractive interest rates.
Established businesses are showing three years of profitability, which makes them better bets for repayment. Additionally, banks are eager to make loans, in part because the housing market has not fully recovered in most areas and because lending to solidly performing small businesses is quite profitable.
At the same time, approval rates by non-bank alternative lenders, such as cash advance companies, decreased for the fifth consecutive month to 63.3% in May from 63.5% in April. Banks and institutional lenders are attracting higher quality borrowers unwilling to pay the high interest rates that alternative lenders, such as cash advance companies, are offering.
As the economy improves, businesses are no longer desperate for cash infusions at high interest rates. Entrepreneurs are moving away from short-term, high-cost money, such as cash advances. It is a good time for any small business owner who is considering expansion to consider making the investment now. (View the full Biz2Credit Small Business Lending Index chart.)