Credit unions are currently experiencing a record low in lending, while big banks have seen a stagnation in lending to small businesses for over a year, according to Biz2Credit and its small business lending index.
In August, big banks with assets of $10 billion or more dropped from a lending rate of 13.3% in July to 13.2%. Similarly, credit unions hit an all-time low of 19.8% in August, declining by 0.1% from July’s 19.9%.
On the other hand, small banks with assets under $10 billion are performing better in terms of providing credit to smaller businesses.
Regional and community banks have witnessed an increase, with lending rates rising from 18.9% in July to 19.1% in August. However, Biz2Credit highlights that these figures are still significantly below the pre-pandemic levels. In February 2019, small banks approved more than half (50.3%) of their business funding requests.
Furthermore, the approval rates of institutional investors climbed from 27.3% in July to 27.4% in August, while alternative lenders saw a slight increase from 29.3% to 29.5%.
Rohit Arora, the CEO of Biz2Credit, expressed his concern for small businesses seeking funding from big banks, stating that this has been a challenge for more than a year. Arora also criticized big banks for holding substantial deposits.
Regarding smaller banks, Arora noted that they have less money available for lending as depositors are placing their funds in alternative options such as T-Bills or money market accounts.
Arora further predicted that the branch system established by banks will become increasingly expensive to maintain, leading to further downsizing as the industry continues its shift towards digital banking. “It’s not going back,” he emphasized.
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