Loan approvals for small business borrowers in the U.S. hit a new peak last month, according to Biz2Credit research. But the story doesn’t end there. Biz2Credit’s latest Small Business Lending Index found that loan approval rates at alternative lenders stagnated – and at credit unions, they actually fell.
Interestingly, while the report found that big traditional banks continue to increase their SMB lending activity, separate analysis suggests that these FIs are losing ground to their smaller competitors in the small business finance race.
This week’s B2B Data Digest explores the stats behind these two conclusions, and also dives into separate analysis about the state of small business lending technology, volume and optimism.
Thirty-four years have passed since SMB optimism was this high, according to the National Federation of Independent Business (NFIB). Its latest index for May 2018 found that small business optimism was the highest it’s been since July 1983, and the second-highest in 45 years. May’s reading was also the highest optimism level for U.S. SMBs since the 2008 financial recession. Still, researchers noted, concerns about labor quality are also the highest in history. Nearly a third (30 percent) of SMBs said they have plans to make capital outlays, while 18 percent said they expect to increase employment; 4 percent said they plan to increase inventories.
Thirty percent of small business loan applications at big banks got approved in May, according to Biz2Credit’s latest Small Business Lending Index. Meanwhile, SMB lending at small banks also increased, with these institutions approving more than 49 percent of SMB loan applications. Both represent post-recession highs for traditional bank lending to small businesses, the report found, noting that big bank approval rates in 2011 were just 8.9 percent. Unfortunately, the news wasn’t all good: Approval rates at alternative lenders didn’t budge, while approval rates among credit unions actually fell, with approval rates hitting 40.1 percent in May, down from 40.2 percent a month prior.
A 1.6 percent decline in shares at large banks, coinciding with a 7.8 percent increase in shares at mid-cap regional banks and a 12.1 percent share increase for community banks, suggest that large FIs are losing out to smaller competitors, per CNBC reports last week. According to the publication, this competitive shift is, in part, linked to small business clients: SMBs need support from their financial service providers, and are receiving it from smaller players. At the same time, mid-market and smaller FIs have also increased their small business loan performance. Big banks’ loan portfolios increased by 3.1 percent between March 2017 and March 2018, the report noted; mid-market regional banks saw loan portfolios increase by 15.7 percent, while community banks‘ portfolios grew 14.7 percent, the publication said.
Twenty percent of small business lending could be facilitated by mobile devices by 2019, according to new predictions from alternative lender Kabbage. The trend suggests that as small and big banks compete for small business lending competition, alternative lenders aren’t ready to give up the fight quite yet, and continue to emphasize their reputations for having cutting-edge, user-friendly technology. In analyzing nearly 150,000 small business borrowers, Kabbage found a 300 percent increase in the number of loans accessed via mobile devices. Researchers noted that 17 percent of SMB loans, and nearly 15 percent of total loan value, accessed via the Kabbage platform are currently done so through mobile devices. According to Kabbage chief revenue officer Victoria Treyger, the data “is evidence of an enormous change occurring in this industry.”