newjerseynewsroom.com

BY ROHIT ARORA

COMMENTARY

Small companies seeking business loans during August found mixed results from different types of lenders. In a month where the overall volume of loan applications increased by 4.3%, my company's Biz2Credit Small Business Lending Index, a monthly analysis of 1,000 loan applications, revealed that approval rates increased at small banks and alternative lenders, but big banks and credit union approvals dropped in August 2012.

Big banks ($10B+ in assets) granted 10.9% of funding requests last month -- a drop from 11.3% in July. The big banks had experienced an upswing in approvals during both June and July. Global credit issues and regulatory pressure to keep their underwriting standards tight so that they can meet their underlying capital ratios are the two primary reasons for the decline.

The good news is that small bank lending approvals jumped to 47.8% in August, up from 47.4% in July. The figure represents the highest approval rating percentage for small banks since Biz2Credit began the Index in 2011. The SBA lending program being pushed by small banks has increased their approval rates.

The loan approvals by credit unions dipped for a third consecutive month in August to 52.9%, the lowest percentage since June 2011. The slowdown in loan approval is partially caused by the 12.25% MBL ceiling, as well as sluggishness in credit unions' willingness to book new business.

Meanwhile, alternative lenders – accounts receivable financers, merchant cash advance lenders, Community Development Financial Institutions (CDFI), micro lenders, and others – rose. In August 2012, alternative lenders approved 64.5% of loan requests, up from 64.1% in July and 6.5% higher than August 2011 approvals.

Alternative lenders recorded their highest approval rates since Biz2Credit began measuring the category. They are offering new products at cheaper pricing, which has helped to increase lending.

* Banks with more than $10 billion in assets are classified as "big banks."

* Banks with less than $10 billion in assets are classified as "small banks."

* Credit Unions are considered a category unto themselves in the Biz2Credit Small Biz Lending Index.

* "Alternative lenders" include accounts receivable financers, merchant cash advance lenders, Community Development Financial Institutions (CDFI), micro lenders, and others.

As the Presidential election draws near, both parties will be looking at unemployment figures and small business growth as key issues. Mitt Romney and President Obama both want to be seen as the best person to help small businesses expand.

Many businesses have begun seeking short-term working capital to prepare for the upcoming holiday season. Of late, the best places to get it were small banks and alternative lenders.

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 nearly $700 million in funding for small businesses in New Jersey and across the U.S.

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