Smaller Banks More Willing to Lend to Small Businesses

Many small business owners may see the improving economy as a positive sign as they look to potentially expand their companies' operations, and when it comes to obtaining the funds that are often necessary to such actions, it seems smaller banks were more willing to accommodate their needs.

Though the total amount of lending from big banks and credit unions took a hit in June, those issued by regional banks improved considerably, according to the latest Small Business Lending Index from Biz2Credit. On an annual basis, the number of small business loan applications approved by these smaller institutions rose to 49.8 percent, up from 47.5 percent in the same month last year, as well as 49.5 percent in May. Biz2Credit CEO Rohit Arora noted this disparity in changes was largely due to the institutions granting more loans from the U.S. Small Business Association.

"While approvals dropped slightly at big banks in June, overall small business lending rebounded in the first half of 2013," said Arora, who oversaw the research. "Banks, both large and small, are granting loan requests at much higher rates than they did a year ago. Small banks gained a slight bit of market share because they are more adept at offering SBA Express loans, typically under $350,000, which are easier to finalize and come without fees. When big banks start processing more SBA Express loans, we will likely see the approval percentages go up. I expect that this will happen."

Mixed results for other financial institutions
At the same time, though, there was a slight dip in approvals on a monthly basis at larger banks, as these declined to 16.9 percent of all applications from 17.3 percent, the report said. However, this was also up 52 percent from the same time last year, indicating that even big banks are feeling far better about the economy and small businesses' place within it these days.

Credit unions, meanwhile, continued to be tighter with small business lending across the board, the report said. On an annual basis, the current approval rate of 44.8 percent is the lowest observed for this type of institution since the Index began tracking it in 2011, and is down nearly 20 percent from the figure seen in the same month last year. Additionally, it's a decline from 45 percent in May. However, it's important to note that it may be lending from bigger banks that led to the decline in willingness from credit unions.

"The return of big banks to the small business credit market further threatens credit unions," Arora said. "Lengthy processes to obtain loans at credit unions are often a large deterrent for customers, which have influenced the movement by higher credit-quality customers who are electing other lending platforms as their primary option."

Of course, taking on even relatively insubstantial small business loans can be a major decision for many owners, and it's certainly not one that should be entered into lightly. As such, it might be wise to do a thorough top-to-bottom accounting of where a company stands financially before even considering such a major move. This might include looking into what companies are paying for their current small business insurance policies. Understanding how much a general liability insurance plan, or those to cover workers' compensation, may help owners to better understand where they might be able to reduce costs as a means of streamlining their enterprises and moving toward being prepared for whatever expansion efforts they hope to undertake.