For Small Businesses: Lending Index Rises, Government Shutdown Had Significant Impact

November 19, 2013

Liberty’s SBA and Owner Occupied CRE Lending Report

Small Business Lending Index Rises Again

The latest Thomson Reuters/PayNet Small Business Lending Index (SBLI) indicates that small business funding increased significantly in September, rising to end the third quarter 118.5 (preliminary). Its highest rating achieved since the index was started in 2005.

The SBLI measures the volume of new commercial loans and leases to small businesses indexed from the study’s base in January 2005 that equals 100. Because small businesses generally respond to changes in economic conditions more rapidly than larger businesses do, the SBLI serves as a relevant indicator of economic conditions. The index is assumed to be a correlated leading indicator of the GDP by 2 to 5 months.

Impact of October Government Shutdown on Small Business Lending

The U.S. government shutdown in October had a significant negative impact on small business lending, according to the Biz2Credit Small Business Lending Index. The Index is a monthly analysis of 1,000 loan applications. Small business loan approval rates were down at traditional banks and credit union lenders.

Just how much they were down depends on the size and type of lender:

•  At big banks — those with $10 billion+ in assets — small-business loan approvals dropped by 20% to 14.3% in October 2013.
•  Small banks also approved fewer loans.  Approval rates at small banks dropped from 50.1% in September to 44.3%.  That is the lowest figure that Biz2Credit’s Index has recorded for small banks since August 2011.
•  Even credit unions, which had been on the lending rebound prior to the government shutdown, experienced a 4% decrease in approval rates in October, dropping to 43.4%.

Small Business Borrowers Still Turning to Non Bank Lenders to Expand

When it comes to securing a loan for a small business, it’s natural to think a bank is the best bet. And that may be true, but a loan may be more difficult to secure than you think.

Pepperdine University’s Private Capital Access Index, which examines business and private capital, had some interesting findings for the second quarter of 2013, as detailed by the Coleman Report:

Of small companies that were in search of funding, 59% targeted banks. The next highest percentage looked to business credit cards (57.2), personal credit cards (49.9), personal loans (48.4) and friends and family (44.2).

The success rate turns that list upside down. Seventy-one percent got funding assistance from friends and family, but only 27% did from banks. What to do when banks give you the stiff-arm? Some businesses turn to alternative financing, in which loans are more accessible and faster, and not necessarily dependent on collateral. But these loans or cash advances can cost much more in the long run.