NEW YORK—Small business lending approval rates at credit unions dropped for the fourth time in the last five months in March to their lowest percentage ever, according to the Biz2Credit Small Business Lending Index.
The analysis of more than 1,000 loan requests on Biz2Credit.com indicates CUs have lagged in developing technology to streamline the loan application process and as a result, continue to lose market share to big banks and institutional lenders. Credit unions granted 43.1% of loan applications in March, a decrease from 43.3% in February 2015.
“Credit unions peaked in 2012 in small business lending and have experienced a slow and steady decline nearly every month," said Biz2Credit CEO Rohit Arora. "They never became the force in small business lending that they had hoped to become."
Meanwhile, small biz lending continued to soar at big banks ($10 billion-plus in assets) and institutional lenders, improved to their highest post-recession levels in March, Biz2Credit reported.
Lending approval rates at big banks have increased in 11 out of the last 12 months. While institutional lenders have emerged as a primary player in small business finance, and their participation in marketplace lending is providing opportunities for longer-term financing deals that, in turn, benefit borrowers who previously resorted to high interest cash advance companies, the company explained.
“Big banks continue to be strong in small business lending,” explained Arora. “This is a reflection of overall strength of the economy, the confidence of small business owners, and the investments that big banks have made in their branding and technology.”
Meanwhile, institutional lenders granted 60.9% of funding requests by small business owners in March, an increase from 60.7% in February 2015. Approval rates by institutional lenders have increased each month since Biz2Credit began monitoring this category of lenders one year ago.
For the fourth consecutive month, small banks denied more than half of their loan requests to small business owners, as lending approval rates at small banks slipped from 49.6% in February to 49.5% in March. After reaching an all-time Index high in May 2014, lending approval rates at small banks have steadily declined for most of the past year.
"Smaller banks have seen a gradual decline for nearly a year. They are losing market share to big banks and institutional lenders, which can offer attractive terms and quicker processing," said Arora.
Approval rates at alternative lenders—merchant cash advance companies, factors, and other non-bank institutions—dropped to 61.2% in March, from 61.4% in February. Alternative lenders' approval percentages have declined each month since January 2014, coinciding with the emergence of institutional lenders in the small business lending marketplace.
"Alternative lenders have declined as institutional lenders have risen, and this trend shows no signs of letting up," Arora explained. "Entrepreneurs no longer have to pay high interest rates offered by alternative lenders. They can get money just as quickly from marketplace lenders at much lower rates. Bad news for alternative lenders, but good news for borrowers."