Small Banks Become Big Lenders To Small Businesses

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Perceptions on lending to small businesses have changed favorably over the last year, and the recent Federal Reserve Survey is a testament to this fact. Even the Federal Reserve Bank of Richmond’s research manager, Shannon McKay, highlighted that loans to small businesses have seen an upsurge for the first time since after the 2008 recession.

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Several small businesses recorded a higher approval rate against their applications with traditional banks, according to the survey. Even as the dominance of alternative funding channels or online lending has gained ground of late, most small enterprises preferred to reach out using conventional methods of funding and a majority of them succeeded in securing a loan.

Nearly 91% of businesses with $10 million in annual sales received the required funding from banks while 65% of mid-sized businesses with revenue in between $100,000 to $1 million had their loans approved. However, funding challenges for small sized enterprises or micro businesses saw little respite as only 54% of them were able to secure required funding.

Small Banks Proactive

Meanwhile, small banks with below $10 billion in deposits were more generous in lending as nearly 76% of total loan applications were processed by them. In contrast, only 58% of the larger banks extended loans to small businesses.

McKay said that the relationship aspect was much stronger in between small businesses and small banks when compared to larger banks. On the other hand, though online lenders keenly participated in lending funds to small entities, the satisfaction ratio of businesses was less than heartening.

As much as 71% of total applicants were granted loans by online lenders. Against such tall numbers, online lenders received a satisfaction rating of only 15 versus 75 and 51 rating given to small and larger banks respectively.

McKay drew the conclusion that the interest of seeking loans from alternative lenders is low among businesses due to high-interest rates and unfavorable lending terms imposed by the latter.

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