By Evan Vitale
How are things looking in terms of small business lending in 2016?
Well, believe-it-or-not, jumps in the interest rates might also mean good news for businesses who want to seek out bank loans in the upcoming year.
You see, banks only make money when they lend money and with higher rates, banks might be more interested in ramping up their small business lending portfolio.
According to the Biz2Credit Small Business Lending Index, the percent of loans applications approved by big banks reach 22.8%, which is the highest since the recession. The recent interest rate hike makes lending to small businesses more attractive for larger banks. The Biz2Credit Small Business Lending Index believes the loan approval percentage next year could go above 25%. Remember, higher rates means more profit for lenders.
But what about other types of lending opportunities?
Institutional investors look good. During November 2015, institutional investors approved 62.4% of all loan requests.
However, alternative lenders, smaller banks and credit unions are granting loans at decreasing rates. In fact, small banks, which usually generate a large number of Small Business Association (SBA) loans, are now approving less than half of the loan applications received. In 2014, they approved more than 50% of loan applications received.
According to Forbes, community banks are struggling to compete, so many business borrowers continue to look to other sources for funding. In addition, big banks on institutional investors, which are making loans possible via an online marketplace lending platform, are able to make quicker decisions at more attractive rates and terms for business borrowers.
Some other interesting notes from Biz2Credit:
- Almost half of all loan applications are made via mobile units.
- Smaller banks and credit unions haven’t kept up with technological innovations and, thus, miss out on loan deals since their application process takes longer.
- Many times, credit unions want a borrower to come to the branch office and become a member.