According to the most recent research by the Small Business Lending Index, the approval percentile for small business loans at large banks rose in January 2020 from one-tenth of a percent to 28.3%; thus, setting a post-recession record high. Moreover, institutional lending approval rates increase by two-tenths of a percent from December 2019’s figure of 66.2% to 66.4%. As can be seen, institutional lenders continue expanding their reach in small business lending. They can offer necessary funding at an appealing interest rate with efficient terms.
Financial experts at Max Funding say, “the financial economy is strong with high levels of optimism among small business owners.” They add, “this combination creates a fertile atmosphere for small business loans. Interest rates remain low, which is encouraging to smaller businesses searching for debt financing to help growth plans. “
The bottom line to business loans is that if a company performs well over the past two years, banks will be eager to lend. “
While the institutional lending approval rates increased, the approval rate for small business loans at small banks took a dip. According to research, small banks dipped from 50.6% to 50.4% in January 2020. This is not an unusual occurrence for this time of year as small banks process several SBA loans. Furthermore, the majority of SBA lending partners need to wait for a company’s 2019 tax returns before granting any small business loans. On the plus side, smaller banks continue to approve more loan requests than requests denied. This is a sign of another good year for all small business growth and development.
According to surveys by the Bureau of Labor Statistics, approximately 225,000 jobs were created in January 2020 helping employment to rise to 3.6%. This is due to the labour force participation increases to a rate of 63.4%. Most of the positions created were by smaller companies. Furthermore, the jobless claims in the United States of America fell to 202,000 in January 2020 – a 50-year low. Another record seen is the increase of private payrolls in January 2020 – the largest increase in approximately five years.
Small businesses are expanding, investing and creating more new jobs with under-represented Americans experiencing an upward economic mobility as a consequence. Income inequality is surely shrinking with wages rising quickly, particularly among workers who would have been left behind in the past; for instance, African Americans, Latinos and low-income females. This improved jobs report is good news for the 30 million small companies in the USA.
Approval rates for small business loans for alternative lenders saw a decrease from December 2019 to January 2020 – 56.3% to 56.1% respectively. The alternative lenders offer funding to small businesses that may not be able to secure traditional financial support from large banks. Alternative lenders are skilled at providing capital for businesses during a cash crunch.
The most intriguing part of January 2020’s Small Business Lending Index is the record low reached by credit unions noted at 39.6% – down one-tenth from the December 2019 rate. Credit unions having difficulty with small business lending must alter the way they conduct business and upgrade to advanced technology in the relevant field. They could also partner with FinTech firms to remain “above ground”. If their conduct does not change, it is unlikely that credit unions will survive. A credit union should be able to apply for loans digitally keeping up with changes in the lending marketplace.
If you are considering application for a small business loan from any type of lender, there are three tasks to complete before filing the application:
1. Update Or Create A Business Plan
Well-prepared business plans make a small business appear more professional. It can make all the difference between a denial or approval of the small business loan application.
2. Gather Financial Statements From 2019
If you have a small business and plan to apply for financing, the lenders (including banks) will review the most recent financial information. After April 15th, lenders are more likely to request your 2019 tax returns with other financial information. If the business performed well financially in 2019, it is advised you place the information on the loan application.
3. Search For The Best Deal
As mortgage interest rates are low, lenders and banks are marketing small business financing within the small business marketplace. This is beneficial as you can compare the different lenders and research their rates and terms; thus, finding the best option for your needs.