At a time when peer-to-peer mortgage lending in the U.S. is actually feeding loans to small banks, the situation appears to have flipped for small-business loans: alternative lenders are approving fewer loans, while big banks are approving more, according to monthly numbers from Biz2Credit.
In September, large U.S. banks — those with at least $10 billion in assets — approved 20.6 percent of small-business loans, up dramatically from the 14.3 percent approval rate in October 2013. The big-bank small-business approval rate has climbed steadily for the past six months, and is now at a post-recession high.
Other institutional lenders’ approval rates for small business financing have also climbed, hitting 59.5 percent in September, up from 56.5 percent in January, when Biz2Credit began tracking that group. Approvals by small banks (50.3 percent in September) and credit unions (43.4 percent) have remained essentially flat over the past year.
Meanwhile, small-business-loan approvals from alternative lenders — which also include merchant cash advance companies and factoring firms in Biz2Credit’s statistics — slid to 62.6 percent, down from 67.3 percent last October. That’s still higher than any other category, but the gap between alternative and institutional investors’ approvals has almost closed.
P2P and institutional lenders have also gotten closer in their business dealings. Increasingly, institutional lenders and banks are referring small-business loan applicants who can’t meet their standards to P2P lenders. As banks and institutional lenders approve more loans, those may be loans that previously would have been P2P approvals.
But the rise in small-business approvals isn’t universal. In the U.K., bank lending to small and medium-size companies has fallen by £1.3 billion in the first half of 2014. Chancellor of the Exchequer George Osborne has repeatedly expressed his frustration that the U.K.’s largest banks — HSBC, Barclays, Royal Bank of Scotland (RBS) and Lloyds — have cut back on loans to all but the largest companies, despite cheap capital made available by the Bank of England under a program called the Funding for Lending Scheme.
Some big U.K. banks have started to respond by setting up special programs of their own. For example, on Thursday (Oct. 9) RBS and its Natwest subsidiary announced the launch of a £1 billion small-business fund that will make fixed-rate loans ranging in size from £1,000 to £250,000 with no arrangement fee.
For his part, Osborne has an alternative idea: In August, he proposed legislation requiring that when banks reject loan applicants, the banks refer them to peer-to-peer loan providers and other alternative finance companies.