The approval rates of loans for small businesses dropped significantly after the financial crisis of 2008 and the subsequent recession, and they still haven’t fully recovered. However those numbers have been rising somewhat over the last few years -- with several caveats.
According to a study published by Biz2Credit, loan approval rates reached their highest post recession level in May of 2014, at 18.8% - 19.4%. This is due to a number of factors, and is based on results from both small and large businesses.
Efforts by the SBA have contributed to increased credit approvals since 2008, through the creation and expansion of programs back by the federal government like the 7(a) loan program, that increased the limits of its maximum loan size to $5 million in 2010, making it viable for medium sized businesses to get funding. They have also removed limitations on income level, and the use of funds to pay for purchases made more than 9 months in the past, opening the program up to more organizations. There is also the SBA express Program, and the Micro Loan Program, both of which help to partially guarantee lending institutions against default losses.
The rise of alternative lending companies is another factor in the recovery of business loan approval rates. Many of these offer flexible options to entrepreneurs, as well as better terms and higher approval rates. There are even some traditional bank lenders that are turning to these sources in order to aid financing for small businesses, in order to help fuel the economy as a whole.
Technology is another factor affecting the rate of business loan approvals. Through the use of data sharing, and interactive interfaces that can be accessed through mobile devices, business owners are now able to search and secure funding options in minutes with just the push of a button. That allows smaller financing transactions to take place in almost real time, while giving lenders a database of information to use, which in turn allows them to approve some credit requests in minutes.
Unfortunately the news is not all rosy. Since May of 2014 approval rates have been steadily falling, although they are not yet at 2008 crisis levels. According to Ted Zoller, director of the Center for Entrepreneurial Studies at the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill, this is due to the fact that, “although loan demand is increasing, big banks are still recovering from the financial crisis. And that’s not the only thing holding them back; new regulations prohibit many banks from issuing as many small business loans as they used to.”
This is offset by the fact that banks are starting to increase loan approval rates for large businesses. According to A study from the Federal Reserve Bank of Cleveland, “Good News and Bad News on Small Business Lending in 2014,” banks are lending to small businesses in amounts greater than $1 million per loan, at a rate that is 24% higher than it was before the recession. However, that same study has shown that bank lending to small businesses has stagnated since 2012, and now stands at 17% below the pre-recession rate.