Big banks warming to small businesses

CHRIS KEANE/REUTERS - The nation’s largest banks approved a higher percentage of small business loan applications than ever before in July.

It has become a familiar refrain from capital-starved small business owners over the past few years — the notion that “banks just aren’t lending.”

That may finally be changing.

A series of data released in the past week point to relaxed credit standards and more money flowing into small companies. One recent report shows small business loan approval rates surged to an all-time high of 17.4 percent in July.

Business lending platform Biz2Credit, which published the report on Tuesday, noted that the rate has jumped more than 50 percent in just the last year. Small business approval rates at credit unions inched higher last month, too, ending a streak of 13 consecutive months of decline.

So why the sudden turnaround? Biz2Credit’s chief executive pegged the reversal in part to this past spring’s tax filings.

The latest round of “tax returns have provided the big banks with financial information that indicates many small businesses are doing better now than they were during the past few years,” Rohit Arora said in a statement. “Thus, the banks are more willing to allocate capital for small business loans, resulting in the uptick in approval rates.”

That uptick is yet another sign that a credit freeze that many have blamed for holding back the economic recovery may finally be coming to a close, at least on Main Street.

Nearly a third of banks reported an increase in demand for commercial and industrial loans from small businesses in a survey released one day earlier by the Federal Reserve. A large number of loan officers reported increased competition from other banks and nonbank lenders, and many said they have lowered their costs to attract borrowers.

“Banks reporting stronger loan demand most often cited increases in customers’ funding needs related to investment in plant or equipment, inventories, and accounts receivable as the top reasons,” the report shows.

An earlier report from Experian and Moody’s Analytics revealed that the credit health of small businesses across the country improved substantially during the first quarter of the year, while another by the U.S. Small Business Administration showed that the number of loans to small firms is rising.

Follow On Small Business and J.D. Harrison .

 
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