"It's all a marketing ploy. The big banks are telling people what they want to hear," said Rohit Arora, CEO of Biz2Credit LLC, a New York-based online small business platform. "Small businesses are finding much greater success in securing funding from smaller lenders: credit unions, community banks, and micro lenders."
Founded in 2007, Biz2Credit has facilitated nearly $400 million in funding since its launch, according to the company's website.
Credit unions are providing more capital because they are local in nature, are more connected with the small businesses in their areas, and do manual underwriting, Arora said, adding the bigger banks are more automated and less flexible with regards to credit scores.
Arora noticed that community-based lenders understand issues related to low personal and business credit scores and are usually less rigid about their funding parameters. The decision making is quicker, they are willing to provide more money as a business grows and many times, they can give better interest rates than the bigger banks, he said.
Some applicants denied credit could become viable borrowers via second-look programs that a number of big banks announced that they would institute, Arora said. He believes there is a lot of posturing going on and large lenders are telling applicants they will review their applications but ultimately, they are still turning down loan requests. Biz2Credit cited a New York Federal Reserve study that showed the nearly 60% of respondents that applied for credit, only half received it despite previous borrowing success.
"What really drives the lending is the simple fact that the smaller, community-focused lenders make money only by making loans," Arora said. "They are not investment bankers and don't generate much revenue from anything other than loan making.