Thursday, July 14, 2011

Small Business Loan Approval Rates

60% of risk managers at banks expect "approval rates for small business credit and loan applications to stay flat or decline in the months ahead" according to a July 14 WSJ article citing the credit risk firm FICO's survey. Notice these were the banks' risk managers, not the business bankers. What this says to me is if you have submitted a loan application through regular, non-relationship based channels at your bank, your loan has a higher probability of being rejected. As I repeatedly state, BUILD a relationship with your BUSINESS BANKER. That relationship can mean the difference between approval and denial or between cancellation of a business line of credit or an extension of that same line.

From the same blurb in the Wall Street Journal, according to a Biz2Credit review of ~1,000 small business loan applications "approval ratings for small business loans by large banks dropped to 8.9% in June from 9.4% in May. Loans at smaller banks fell to 42.5% from 44%." According to the article, Biz2Credit cited weaker revenues and profits as the culprit. I want to know if every year there is a drop off between May and June. In many industries this is the case. People go on vacation - business owners and business bankers - extending the approval process. The statistics don't state if the other applications were denied, placed on hold, not yet competed,... Do you see my meaning here? It's important to look at statistics and see trends but you can create unnecessary problems for yourself if you read statistics without the full context. It's kind of like taking a quote out of context.

Another thing to note is the HUGE differential in approval rates for small business loans between the big national banks and the smaller regional and community banks. The latter often have a significant small business focus. Many community banks were founded by leaders from the small business community and/or have many small business owners on their board. It's like anything else. Go where you are liked and valued. If you have had problems getting or retaining a small business loan or a business line of credit in the past, consider a community bank or regional bank.


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