Small Business Loan Approval Rates Increase Among Most Lenders in January

Small business loan approval percentages at big banks (more than $10 billion in assets) increased from 14.3% in December to 14.5% in January and approval rates at small banks (under $10 billion in assets) rose from 20.1% in December to 20.3% in January, according to Biz2Credit’s Small Business Lending Index.

Among several categories of non-bank lenders, approval percentages also climbed. Institutional lenders approved 25.1% of funding requests in January, up two-tenths of a percent from 24.9% in December. Alternative lenders’ approval rates rose from 26.1% in December to 26.3% in January. Credit unions approved 20.7% in January, up one-tenth of a percentage after stalling the prior two months.

Two years ago, bank approval percentages were almost double what they are today. In January 2020, big banks approved 28.3% of loan requests, while small banks approved 50.4% of loan applications. Non-bank lender percentages in 2020 were even higher: Institutional lenders approved nearly two-thirds (66.4%) of requests, alternative lenders granted 56.1% and credit unions approved 39.6%.

“Banks and most non-bank lenders are showing slow but steady increases in their loan approval percentages as business owners look to reinvest in their businesses,” Rohit Arora, CEO of Biz2Credit, said. “Still, approval percentages are rising slower than anyone had hoped. An expected increase in interest rates from the Federal Reserve may entice them to open the purse strings a little bit more. Loan approval rates are still far below pre-COVID approval levels of January 2020.

“The COVID crisis accelerated the shift towards digital lending to small businesses. More and more small business owners are now more comfortable in borrowing or applying for credit online, which wasn’t the case prior to the pandemic. Banks and non-bank lenders are looking to digitize their small business loan application process. Digital learning and AI have helped reduce lending risk, while digitizing has streamlined the process and reduced the time it takes to make a decision.”

For the index, Biz2Credit analyzed loan requests from companies in business more than two years with credit scores greater than 680. The results are based on primary data submitted by more than 1,000 small business owners who applied for funding on Biz2Credit’s platform.

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