This article was written by Catherine Clifford, in Entrepreneur Magazine, reprinted by permission
If you are looking for a loan for your business, big banks aren’t your best bet right now. Instead, you might be better to turn to a community bank, a credit union, of any number of alternative lending sources, such as account receivable financiers, microlenders, or Community Development Financial Institutions (CDFIs).
While overall, the lending market has been showing signs of life, the biggest U.S. banks approved a smaller percentage of loans in March than in February, according to a recent survey by Biz2Credit, an online credit marketplace in New York that connects small and midsize businesses with lenders.
Loan approvals at big banks -- defined as those with more than $10 billion in assets -- dipped to 10.9% in March from 11.7% in February. The slide in approvals at the biggest U.S. banks comes as approval rates at smaller banks, credit unions and alternative lenders stayed steady or ticked up slightly. The approval rate was also below the 11.6% approval rate from the largest U.S. banks in March of 2011.
The availability of credit for small businesses has been improving over the last year, says Rohit Arora, the CEO of Biz2Credit, but the recent slowdown is troubling.
The contraction of the big bank loan approval rate also comes as big banks tout their expansion into the small business lending arena, Biz2Credit says.
For example, Bank of America recently said it is hiring 90 new small business bankers across North and South Carolina and Georgia, part of an initiative to add 1,000 small business bankers across the country by the middle of the year. In particular, Bank of America said it increased new credit to small businesses by 20 percent in 2011, compared to the previous year.
In the wake of the recession, small businesses have been gripped the hardest by a tightening on the spigot of loans and have been increasingly looking to new and alternative ways of accessing capital. In an effort to get capital flowing again to small businesses, the JOBS Act was signed into law just last week. The new law aims to make capital more available to entrepreneurs and small-business owners by stripping away certain regulations, making it easier for entrepreneurs to raise money and go public.
The Biz2Credit index was calculated by analyzing lending applications from 1,000 candidates seeking loans on Biz2Credit.com. Loan requests ranged from $25,000 to $3 million, the average credit score was 680 and the average life of the business was two years.