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Big Banks Tighten, Alternative Lenders Thrive

alternative lenders

In the shifting landscape of small business financing, the latest Biz2Credit Small Business Lending Index™ has revealed a notable trend: while big banks are tightening their belts on loan approvals, alternative lenders are stepping up to fill the void.

According to the report, loan approval rates at big banks with assets exceeding $10 billion have seen a slight decrease from 13.1% in September to 13% in October 2023. This continued decline underscores the challenges small businesses face in securing financing from traditional banking institutions. Rohit Arora, CEO of Biz2Credit and a recognized authority in small business finance, notes that the path to obtaining a small business loan from a big bank is becoming increasingly arduous as the months roll by.

In contrast, small banks have shown a modest but consistent increase in loan approval rates, climbing from 19.3% in September to 19.5% in October. This marks a steady rise since June 2023, suggesting that small banks are becoming a more reliable source for borrowers, particularly due to their focus on SBA lending and a higher rate of loan closures.

The real story has been the performance of alternative lenders. For the tenth consecutive month, these non-traditional financial institutions have seen an increase in loan approval rates, reaching 29.9% in October, up from 29.7% in September. This category, along with institutional investors, which also saw a slight increase to 27.6%, represents the highest loan approval percentages among the five categories of lenders monitored in the Index.

Arora emphasizes the growing reliability of these non-bank lenders as financing options for small businesses, a trend he believes will persist. The rise of alternative lenders is reshaping the small business lending landscape, offering a lifeline to those who find the doors of big banks closed to them.

This shift comes against the backdrop of a broader economic context, where total nonfarm payroll employment rose by 150,000 in October, and the unemployment rate remained stable at 3.9%. Notably, small businesses have been instrumental in job creation, particularly in sectors like health care, government, and social assistance, even as manufacturing saw declines due to strike activity.

Key to contextualizing this report is that the Biz2Credit Small Business Lending Index™ is a reflection of loan requests from companies in operation for more than two years with credit scores above 680, based on data from over 1,000 small business owners who applied for funding on Biz2Credit's platform.

As the financial ecosystem evolves, it's clear that alternative lenders have become increasingly significant players in supporting the growth and sustainability of small businesses. Their rise is a testament to the adaptability of the financial sector and the enduring spirit of entrepreneurship.

For small businesses navigating the complex terrain of financing, the message is clear: alternative lenders are not just a temporary alternative, but a growing force in the financial sector, offering new avenues for growth and stability in an ever-changing economic landscape.



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