Following the bursting of the real estate bubble and the financial crisis of 2008, big banks dramatically scaled back their small-business lending programs, making it near impossible for small-business owners to qualify for traditional business loans. Many turned to alternative lenders, which offer a lower bar for qualification and speedy turnaround times, but can’t match the financing power of large banks.
The Numbers Don’t Lie
The National Federation of Independent Businesses (NFIB) conducts monthly Economic Trends Reports, and Small-Business Credit Conditions are among the subjects these reports address.
December 2103 report has only 4% of small-business owners reporting that all of their credit needs were not met during the month. That’s the lowest number we’ve seen since February of 2008. The report also indicates that a full 32% of small-business owners surveyed are having all of their credit needs addressed in an adequate manner.
The recent Biz2Credit Small Business Lending Index shows big bank loan approval rates at 17.6%, the highest they’ve been since the index’s inception. Compared with last year’s 14.9%, this is very encouraging news.
Fortunately for small-business owners, the recent trend of banks with more than $10 billion in assets reopening the lending floodgates is continuing. There are a number of factors contributing to large banks lending more. For one thing, they are well aware that keeping capital stockpiled is not very profitable, so they’re loosening lending standards a bit.
For another, small-business owners have learned full-well the importance of building and maintaining solid business credit ratings. During the most harrowing parts of the financial crisis, only the most creditworthy businesses stood any chance of securing financing.
A third factor contributing to the increased flow of small-business capital from big banks is the fact that banks closely examine small business’ profits over the past three years. June 2009 was pronounced by leading economists to be the official end of the so-called “Great Recession,” and that date is nearly four years past. Many small businesses have experienced steadily improving prospects since mid-2009, and loan officers are starting to see that in their earnings reports.
Business Credit Still a Major Asset
Small-business owners who consider seeking financing from large banks in the future should not take these numbers as a sign that it’s OK to let their business credit ratings slip. Big banks may be loosening lending standards, but a solid business credit rating and a strong bottom line are still very important criteria in the eyes of potential lenders. By taking the steps necessary to boost business credit ratings, small-business owners can dramatically improve their chances of being approved for business loans with favorable terms.
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