Garnet Capital Advisors Blog

Larger lenders have been approving a higher fraction of applications for small business loans, taking market share away from banks with a more modest scope.

Lending index reaches all-time high
The Biz2Credit Small Business Lending Index, based on applications submitted to institutions with more than $10 billion, increased to 19.4 percent in April from 18.8 percent in March. The April reading represented an all-time high for this measure. Biz2Credit CEO Rohit Arora commented on the trends that drove this increase.

"There was a lot of pent up demand in the marketplace. Retailers are buying inventory, and restaurants are upgrading their outdoor seating in preparation for the summer," Arora said. "Big banks make speedier decisions on non-SBA loans, which take a long time to process. That is a major reason for the jump in approval rates by big banks."

Approval rates rise at institutions
A perfect example of these larger organizations becoming more lenient with their credit is the approval rates of institutional investors. These entities granted 58.3 percent of requests for loans in April, compared to 58.1 in March. Arora noted that these firms are becoming a more prominent source of lending.

"They are gathering momentum as a category of small business lender as company owners [can now] borrow larger sums of money at cheaper interest rates," Arora said.

While these institutions - which include family funds, credit funds and insurance companies - approved a higher percentage of small business loan applications, many smaller lenders did the exact opposite, according to American Banker.

Small bank lending falls
Banks with less than $10 billion in assets granted 51.1 percent of small business loan requests in April, compared to 51.6 percent in March, the media outlet reported.

In addition, credit unions gave a green light for 43.5 percent of all small business applications in April, according to the news source. This represented the lowest figure this measure has attained in the three years that the index has existed, and a decline from March's 43.6 percent.

Alternative lenders accepted 63.5 percent of requests for small business funding in April. This represented the fourth month in a row that this fraction moved lower.

The shifting demographics in the small business lending market - in which larger institutions have been accumulating a greater share of the market for small business lending - could impact the market for loan sales in several ways. Since big banks are more willing to extend credit to fledgling firms, it could increase the amount of this debt that is available.

In addition, smaller lenders that want to get debt on their books may need to purchase loan portfolios. Financial institutions that are interested in exploring this possibility might consider contacting Garnet Capital Advisors, which has significant experience in this space.