The calendar year 2017 was a strong one for small business lending in New York.
Business loan approval rates for big banks (25.3%) and institutional lenders (64.3%) in New York hit new heights in Decemeber last month, according to the latest Biz2Credit Small Business Lending Index (December 2017 figures). The monthly analysis examined more than 1,000 small business loan applications on Biz2Credit.com.
The economy is performing well on many different levels. Holiday retail sales were up, unemployment remains low, and salaries have gone up a notch.
New York-based businesses, like others across the country, are anticipating that the tax form bill could help them. This gives potential borrowers more confidence to take risks.
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Meanwhile, lenders are closing deals and interest rates continue to trend upwards, which makes lending more profitable for them.
Throughout 2017, small business financing application approval rates climbed at larger institutions, such as banks and institutional lenders. Small banks in New York approved 49.1% of the funding requests they received in December, the same percentage as in the month prior.
For the past three years or so, approval percentages at regional and community banks have remained near 49% with only minor fluctuations. The last time approval rates were above 50% was in October 2014.
SBA lending boomed in 2017, and smaller banks (community and regional banks) were among the most active lending partners. Expect this trend to continue throughout 2018. This is good news for aspiring business owners who might not have good credit scores and are unlikely to secure a traditional small business loan from a bank.
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SBA loans that offer the lender a government guarantee help level the playing field for women-owned businesses and minority-owned companies. In a place as diverse as New York City, this is extremely important. SBA loans are available at banks, credit unions and other lending partners approved by the federal agency.
Loan approval rates among alternative lenders in December were at to 56.9%. Approvals for the category have declined from their lofty levels a few years ago when the economy was bad and small business owners, desperate for cash infusions, paid very high rates of interest for funding. Things have stabilized since the post-recession “credit crunch,” and creditworthy small business owners are turning away from alternative lenders for lower bank rates. This turn of events leaves alternative lenders with lower quality (translation: more risky) borrowers.
The strong overall economy makes consumers more willing to spend their money. Additionally, business optimism — especially for companies looking to expand — encourages entrepreneurs to invest in new ventures. Lenders, buoyed by rising interest rates are open to making more deals.
Loan approval rates at credit unions climbed one-tenth of a percent in December as they approved 40.4% of loan applications last month.
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Just two months ago, in October, credit unions had hit a record low point for the category. While credit unions have a place in small business lending, but they have fallen behind banks and institutional lenders, who are have become aggressive in small business lending.
Area credit unions approved a little more than four of ten requests (40.3%). Credit unions are far behind in technological upgrades, and it has hurt them over the past few years.
As with just about any industry you can think of, banks and institutional lenders are taking advantage of the benefits of incorporating financial technology (FinTech) into their operations. Technology streamlines the process and reduces costs.
Further, the lenders that have improved their digital application process — including mobile submissions of funding requests — are simply responding to the needs of the marketplace. Fewer and fewer small business owners are actually walking into the bank branches we see scattered all over Manhattan and the outer boroughs.
In fact, most people under the age of 30 have likely spent little time at a bank other than to use an ATM — and likely did so because some store that had something they wanted accepted only cash. On Biz2Credit’s platform, more than six in 10 applications originate from a mobile device.
There has been a true revolution in small business finance that is making capital — the life blood of any company — more readily available. Since small businesses help drive the economy and create jobs, economic times are quite good.
Rohit Arora is the CEO and co-founder of Biz2Credit.com, a leading online marketplace that connects entrepreneurs with small business loan options to meet their business financing needs. Rohit was named Crain’s NY Business “Entrepreneur of the Year 2011.”
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