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. 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™ released today. However, approval rates at small banks and non-bank lenders improved.Endorsement rates of business advance applications at little banks rose from 21.2% in December to 21.4% in January. Among non-bank moneylenders, endorsement paces of elective loan specialists expanded from 27.6% in December to 27.8% in January. Also, institutional loan specialists allowed 26.1% of financing demands last month, up from 25.9% in December.
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“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,” said Rohit Arora, CEO of Biz2Credit, one of the nation’s leading experts in small business finance and fintech. “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,” added Arora. “Business owners were hoping to see an end to interest rate hikes in early 2023, but it doesn’t appear that will happen soon.”Total nonfarm employment rose by a surprising 517,000 in January 2023. “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.
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