If there were ever a time to borrow, it is now. The reasoning is simple: interest rates remain low, and big banks are granting a higher percentage of loans to small businesses than any time since the recession. Not only have big banks made improvements, institutional lenders have entered the marketplace and have proven to be viable competitors. Competition in the small lending marketplace has resulted in quicker decision-making, lower interest rates, longer terms, and higher approval rates. These factors have benefitted borrowers in search of capital.
According to the Biz2Credit Small Business Lending Index for May 2015, the monthly analysis of loan applications conducted by my company, institutional lenders approved 61.3% of funding requests by small business owners, up from 61.1% in April. For the first time since we have been monitoring different categories of lenders, approval rates at institutional lenders are higher than alternative lenders (merchant cash advance companies, factors, and other non-bank lenders).
Alternative lenders' approval percentages have declined steadily as new players entered the game and as banks picked up their small business loan-making. Factors, cash advance companies and others, which typically charge substantially higher rates, now tend to receive funding requests from borrowers that are less creditworthy than others. Meanwhile, approval rates by institutional lenders on marketplace lending platforms have increased each month ever since January 2014.
Big banks approved 21.9% of small business loan requests, up from 21.7% in April. This jump marks the seventh consecutive month of improvement. Big banks are finding success in promoting low interest rates, allowing them to approve a larger amount of small business loan requests. Meanwhile, small banks are granting a little less than half of the funding requests they receive. In May, approval rates at small banks dropped slightly to 49.5% from 49.6% the previous month.
Federal Reserve Chairwoman Janet Yellen has warned for quite some time that an interest rate hike may occur sometime this year. While it has not yet happened, as many economists had predicted, good times will not last forever. The economy is relatively strong, companies have shown stronger returns in 2014 than in years prior, and funders are looking to make deals. Eventually, demand for available, inexpensive money will drive the price up. My advice is to act quickly if you need funding to expand your business.