In recent years, it has been extremely difficult for small businesses in particular to obtain loans from lenders, mostly because these financial institutions were still trying to be extremely cautious about the ways in which they issued credit in large quantities. Now, however, conditions in this market seem a little easier for independent companies, which could serve as a boon to prospects for future growth.
While large banks still aren't approving the vast majority of small business loan requests nationwide, there was nonetheless an uptick in lending of this type over the course of November, according to the latest Small Business Lending Index, issued monthly by Biz2Credit. In all, 17.4 percent of applications were given approval by these financial institutions – defined as those with $10 billion or more in assets – and that number was up from just 14.3 percent a month earlier. On an annual basis, though, this type of approval was up more than 30 percent in November.
Meanwhile, it has likewise become easier to obtain such financing from smaller lenders as well, the report said. Small banks signed off on 49.7 percent of such requests last month, up from 44.3 percent. However, these latest upticks from both types of institution only served to bring approvals back above the levels seen prior to the federal government's recent shutdown.
"Big banks have begun to feel the pressure to lend more money with the Dodd-Frank reform bill nearing and we should expect to see more changes accordingly in the next year," said Biz2Credit chief executive officer Rohit Arora. "The refinancing boom at big banks has waned, and their distribution strength will soon fade as branch networks are losing money. Big banks must begin to focus on improvements in other areas such as technology. It's still puzzling why many banks and credit unions still do not offer online small business applications to streamline the process. This would benefit both the financial institutions and the loan applicants."
Nation's smallest lenders more of a mixed bag
Of course, it wasn't all good news for small business approval rates in November, as some difficulties persisted for alternate lenders in particular, the report said. Their approval rate remained extremely high at 67.2 percent, but that was down very slightly from the 67.3 percent seen a month earlier, and that may be good news for companies in ways that it wouldn't have been just a few years ago. Arora noted that in the past, many of these alternative sources might have simply been "legalized loan sharks," but now typically involve more non-bank players.
Meanwhile, credit unions increased their lending to small businesses, approving some 44.5 percent of loan requests last month, the report said. That was up from 43.4 percent in October, and marked a roughly 10 percent increase on an annual basis.
Owners likely know all too well how important it is for their companies to have access to this type of financing when it comes to being able to expand their operations. Small business loans can be used to increase a workforce, buy new equipment, move to bigger facilities, or improve existing ones. However, it can also be wise for these entrepreneurs to do more to ensure that their companies' bottom lines are as secure as possible, such as by seeking out the most affordable small business insurance policies available to them. Cutting costs for workers' compensation or general liability insurance coverage can save companies thousands of dollars or more per year, which can, in turn, go a long way toward improving the margins on which any small enterprise operates.