Big banks have rebounded as a primary source for small business owners with good credit.
In July, small business loan approval rates at big banks ($10 billion+ in assets) increased to 20.1%, a new post-recession high, according to the Biz2Credit Small Business Lending Index, my company's monthly analysis of more than 1,000 loan applications for small business funding.
This represents over a 15 percent increase in lending approval rates at big banks in a year-to-year comparison. More importantly, the financial health of small businesses has improved over the last year thus creating a demand for more reasonably priced, longer term loans for lenders.
While small banks are still approving more than half of their small business loan requests, another good sign for the economy, big banks are increasingly adopting technology that helps streamline the loan application process. This helps shorten the time for borrowers to receive the requested funding, and it is especially the case for non-SBA loans.
Loans from banks can be had at far more reasonable interest rates than alternative lenders typically offer. In some cases, alternative lenders charge interest rates of 30-50 percent. However, more intense competition from big banks and, more recently, from institutional lenders, are cutting into their market share.
Most small banks, however, rely heavily on SBA loans, which are backed by SBA loan guarantee programs that reduce the risk of loans in the event that they default. The downside of borrowers applying for this type of loan is a long process between the loan application and receiving the funding; businesses may have to wait up to 14 weeks to receive their loan.
There is still room for improvement, though. The SBA needs to streamline its Small Loan Advantage program. Despite the assurance of Maria Contreras-Sweet, the new SBA Administrator, we have not seen the improvements yet as far as improving this loan application process regarding eSignatures and other technological advancements. When this happens, entrepreneurs will enjoy even greater access to capital.