While it may not be much of a surprise to credit unions that some banks are not eager to approve funding for small businesses these days, the rate of rejections might cause some alarm.
New York topped the list of states where small businesses’ requests for credit were turned down the most, according to Biz2Credit, a New York company that connects small and medium-sized businesses with lenders.
In a study of 1,000 small businesses, Biz2Credit found that Chase, Citibank, Bank of America and TD Bank frequently rejected applicants for funding in New York.
Chase Bank topped the list of small business loan rejections in New York at 32.63% followed by Citibank (15.79%), Bank of America (8.42%) and TD Bank (7.37%).
“We are finding that the same banks that were lending to small business owners before the credit crunch essentially closed the spigots on entrepreneurs,” said Rohit Arora, CEO of Biz2Credit.
Arora said he oversaw the research based on applications made on the online platform over the past two years.
“Why did they stop lending, and when will they get back into the game? The economy was better in 2010-11 than it was in 2008-09,” Arora said.
The small businesses examined in the analysis tracked businesses in operation for more than two years, had credit scores of 650 or higher and had an existing banking relationship, according to Biz2Credit. The information is based on loan applications made during 2010 and 2011, the firm said.
“The businesses we looked at are survivors that made it through the recession” Arora said. “When they approach [the] smaller banks, credit unions and alternative lenders, they are getting money. The big banks are sitting on their assets.”
After New York, small businesses’ funding requests were rejected the most by big banks in California, Florida, Texas, New Jersey, Illinois, Georgia, Maryland, Colorado and Pennsylvania, according to Biz2Credit. Within these states, six credit unions each rejected one small business’ request during the 2010 and 2011 period.
Arora recently pointed out how ramped up credit unions are becoming in the small business lending space. In November, the latest period Biz2Credit tracked, they had a 57% loan approval rate. Citing NAFCU data, he also said credit unions had increased loan making by 4.5% in the 12 months ending in June 2011.
“The biggest story is the continued aggressiveness of credit unions in small business lending,” Arora said.
On the other end, credit unions were also actively soliciting deposits at the expense of big banks in order to have the money to make loans, Arora said looking at November data.
Overall, credit unions, community development financial institutions, micro lenders and others approved 62% of funding requests in November, a rise from 61.8% during October.
Biz2Credit said loan approvals by small banks increased to 47% in November, their highest rate this year, and an increase from 46.3% in October. Approvals by large banks also rose, reaching 10% for the first time since April.
Meanwhile, banks with assets between $10 billion and $50 billion are starting to come back in the market, albeit cautiously, Arora pointed out.
“They are continuing to monitor the European financial crisis, as well as the debt battle in Congress. National and international issues impact big banks more than smaller lenders.”
Biz2Credit’s analysis also found that loan request amounts ranged from $25,000 to $3 million, that the average credit score was above 680 and that average-time-in-business was slightly more than two years.