Alternative lenders’ loan approval rates rise in the US
Alternative lenders in the US saw their loan approval rates tick up from 27.2 per cent in July to 27.3 per cent in August, according to new data.
The latest Biz2Credit Small Business Lending Index also found that institutional lenders approved 25.9 per cent of loan requests in August, compared to 25.8 per cent in July.
However, credit unions saw their approval rates drop slightly from 20.4 per cent in July to 20.3 per cent in August.
The backdrop to the growth among alternative finance providers is that small business loan approval percentages at big banks dipped from 15.3 per cent in July to 15.1 per cent in August, but rose at small banks from 21.2 per cent to 21.4 per cent.
Read more: SMEs say banks won’t lend to them
“The overall conditions are tightening, and big banks are taking more provisions now”, said Biz2Credit chief executive and co-founder Rohit Arora.
“Since smaller banks are more active in SBA lending, their approval rates are still strong as demand for government-guaranteed products is high.”
The report found that 37 per cent of small business owners reported that inflation was their single most important challenge in operating their business, rising three percentage points from June.
Concern over inflation is at its highest rate since the fourth quarter of 1979, according to the NFIB Small Business Optimism Index, published last month.
Read more: How LendInvest is inflation-proofing its development loanbook
“Inflation is hitting small businesses hard as their input costs have gone up,” Arora said. “Thus, they need more working capital. Further, labour shortages have led to companies having to do more with less. Since their automation level is lower than big businesses, higher labour and material costs impact small companies more.”
Arora said he anticipated a further drop in lending approvals going forward, as more consumer spending is channelled away from luxuries and travel and towards essential products and services.
Read more: Are SME developers swapping banks for alternative lenders?
