Non-Bank Lenders Record Growth in Small Business Loan Approval Rates in January

Small business loan approval percentages at big banks slipped again, falling from 14.5% in December to 14.4% in January 2023, according to the latest Biz2Credit Small Business Lending Index. However, approval rates at small banks and non-bank lenders improved.

Approval percentages of business loan applications at small banks rose from 21.2% in December to 21.4% in January. Among non-bank lenders, approval rates of alternative lenders increased from 27.6% in December to 27.8% in January. Similarly, institutional lenders granted 26.1% of funding requests last month, up from 25.9% in December.

“Alternative lenders and institutional lenders are seeing an uptick. With SBA loan and traditional term loan interest rates climbing, the cost of capital from non-bank lenders is not that much higher now,” Rohit Arora, CEO of Biz2Credit, said. “Companies that need working capital are opting to get funding from non-bank lenders because even though the rates are a little higher, the money comes much quicker and it’s more of a sure thing.”

The inflation rate has dropped quite a bit compared to what it was three or four months back, but with the latest Jobs Report showing such strong hiring numbers, the Fed may again raise interest rates. Thus, the cost of capital for small business will continue to climb. Business owners were hoping to see an end to interest rate hikes in early 2023, but it doesn’t appear that will happen soon.”

Small business loan approval rates at credit unions continue to drop. In January, credit unions approved 20.1% of loan requests, down one-tenth of a percentage from December.

Total nonfarm employment rose by a surprising 517,000 in January 2023. Meanwhile, the unemployment rate is currently at 3.4%, according to the Jobs Report released by the Bureau of Labor Statistics on Feb. 3. Job growth was widespread, led by gains in leisure and hospitality, professional and business services and healthcare.

“The latest job figures are a mixed blessing for small business owners. While people are working and spending, it also means that inflation likely will linger for a longer period of time, and the Fed may continue to raise rates, which obviously makes it more expensive to borrow money,” Arora said.Biz2Credit analyzed loan requests from companies in business more than two years with credit scores above 680. The results are based on primary data submitted by more than 1,000 small business owners who applied for funding on Biz2Credit’s platform.