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Small business lending on the uptick in January 2012

aroraRohit091311_optBY ROHIT ARORA
COMMENTARY

Some welcome news for small business owners seeking capital: Lending in all categories of lenders -- including big banks -- increased in January.

The Biz2Credit Small Business Lending Index, my company's monthly analysis of 1,000 loan applications, found that approval rates of small business financing requests in January 2012 by small banks and non-bank lenders increased to their highest levels in the past 12 months. Meanwhile, lending at big banks jumped two percentage points over December's rate to 11.7 percent, the highest rate since February 2011.

The big trend in small business lending continues to be the rise of alternative lenders: Community Development Financial Institutions (CDFI), Accounts Receivable financers, merchant cash advance, micro lenders, and others. In January, these institutions approved 62.4 percent of the funding requests, up from 62.2 percent of funding requests in December.

Credit unions, which have become increasingly active in small business lending, granted 57.6 percent of small business funding requests, a rise from the 57.4 percent approval rate in December 2011.

Loan approvals by small banks increased to 47.5 percent in January 2012, up from 47.1 percent in December, to reach their highest rate in the past year.

Approvals by large banks rose to 11.7 percent, the highest percentage since Feb 2011, when 11.9 percent of small business loans were granted.

Month 2011

Big Bank ($10B+ assets) Approval %

Small Bank Approval %

Credit Union Approval %

Alternative Lenders

Approval %

January

12.8%

43.5%

48.9%

49.3%

February

11.9%

43.9%

49.1%

51.6%

March

11.6%

44.2%

48.8%

51.9%

April

10.4%

44.6%

50.1%

53.6%

May

9.8%

45.0%

51.2%

53.8%

June

8.9%

42.5%

52.3%

54.9%

July

9.8%

44.9%

53.4%

52.2%

August

9.4%

43.8%

54.2%

58.0%

September

9.2%

45.1%

55.5%

61.5%

October

9.3%

46.3%

56.6%

61.8%

November

10.0%

47.0%

57.0%

62.0%

December

9.7%

47.1%

57.4%

62.2%

January 2012

11.7%

47.5%

57.6%

62.4%

Optimism seems to be returning. We have seen a 35 percent increase in month-to-month volume of new loan applications, which is a good sign. Strong holiday sales combined with latest jobs report showing that the U.S. unemployment rate fell to 8.3 percent in January -- its lowest level in 2.5 years -- indicates that brighter days may be ahead.


With entry of bigger players in alternative financing, the cost of funding in this asset class has begun to drop from an average 27- 28 percent to 16-18. More and more players have joining alternative funding space, thus driving up competition and lowering overall barriers to credit access and lower interest rates. There is an increase in startups looking for funding, and many of their needs are not fully addressed by traditional lending institutions.

Banks with assets between $10 - $50 billion are starting to come back in the market, albeit cautiously. They are continuing to monitor the European financial crisis, as well as the U.S. debt debate. Additionally, toward the end of 2011, big banks tried to shore up their capital base and thus tried to reduce their outstanding loan portfolio.

Our analysis also found that loan request amounts ranged from $25,000 to $3 million; that the average credit score was above 680, and that average-time-in-business was slightly more than two years.

Unlike other surveys, these results are based on primary data submitted by more than 1,000 small business owners who applied for funding on our platform.

Rohit Arora is co-founder and CEO of Biz2Credit, an online resource that connects 1.6 million small business owners with 1,100+ lenders, credit rating agencies and service providers such as CPAs and attorneys via its Internet platform. Since 2007, Biz2Credit has secured more than $500 million in funding for small businesses in New Jersey and across the U.S.

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