Entrepreneurs seeking startup financing may have an easier time obtaining loans in the coming months, as the lending market appears to be improving, especially among smaller financial institutions. The monthly Biz2Credit Small Business Lending Index revealed more local banks - those with less than $10 million in assets - had higher loan approval rates in February.
More entrepreneurs getting loans from small banks
Approval rates jumped to 50.3 percent last month, compared with 49.9 percent in January. The number of successful applications had been rising slowly throughout 2012 - in February of 2012, it was at 47.6 percent. Small banks are by far outpacing larger financial institutions in terms of providing business financing. The index found that in February only 15.9 percent of small business loans were approved by big banks, while in January only 15.3 percent of applications were successful.
"Smaller banks are making more and more loans through the SBA's Small Loan Advantage Program, which range in amounts from $50,000 to $350,000 and require little collateral," said Rohit Arora, CEO of Biz2Credit.
While credit unions and alternative lenders are still options for some entrepreneurs seeking funding, they're now rejecting more loan requests than they have in the past. The index revealed credit union loan approval dropped to 45.9 percent last month, compared with 46.9 percent in January. Alternative lender approval rates held steady from January to February at 63.7 percent, but that number dropped from December 2012's 63.8 percent.
"Despite the surge of loan approvals by credit unions from late 2011 and early 2012, they are rejecting more than half of the funding requests from small-business owners," said Arora. "They are lagging behind as traditional banks are becoming more aggressive in the small business lending space. Credit unions also have to make better use of technology. Their entire process is too slow."
Small banks offer more than loans
While entrepreneurs may initially choose to work with smaller financial institutions in order to more easily obtain loans, they may also find these banks offer them more personalized and unique cash management options that can help them advance their companies in the long run. With more options than they may receive at larger banks, business owners may discover the benefits of working with smaller institutions are too numerous to pass up.
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