Business Lending: Credit Unions Lag, POS Lending Grows

Giving businesses and people credit is the focus of several recently released reports, focused on small business loan approvals, POS lending, the credit card debt study, and credit scores by locations.

The first of this two-part Web emphasizes business lending. Part two highlights credit card debt and credit scores.

The just released “Biz2Credit Small Business Lending Index,” found approval rates for small business loan applications remained at a record high of 27.5% at big banks ($10 billion-plus) in May, while the approval percentage climbed yet again at small financial institutions, which reached 49.9%.

“Bank approvals of small business loans are as high as they have ever been in the 21st century’s post-recession era,” Biz2Credit CEO Rohit Arora, who oversees the monthly research derived from more than 1,000 small business credit applications on his company’s online lending platform, said. “The economy is strong, which bodes well for small businesses searching for capital.”

Index report findings:

• Small bank approvals of small business loan applications climbed one-tenth of a percent from 49.8% in April to 49.9% in May. “SBA lending is a big part of small business loan-making by small banks,” Arora explained. “Small banks are approving nearly half of the loan requests they receive. This bodes well for entrepreneurs.”
• Institutional lenders climbed two-tenths of a percent to a 65.5% approval rate, up from 65.3% in April. “Institutional lenders are an excellent source for small business financing, and are continuing to play in increasing role in the small business lending marketplace,” Arora explained.
• Loan approval rates among alternative lenders dropped one-tenth of a percent to 57.1% in May, down a notch from 57.2% in April.  “Because the banks are lending aggressively and can offer better rates and terms, alternative lenders have declined slowly but steadily this year,” Arora said. “The banks receive applications from higher quality borrowers, and they offer lower interest rates because default rates are so low at the moment.”
• Credit unions again stayed at a record low 40.1% of loan applications in April. “Credit unions are looking for ways to expand, including partnering with the SBA on small business loans,” said Arora, who oversees the Biz2Credit research. “Partnering with the SBA is a good step for credit unions. However, they still are lagging in digitization, which hurts them,” Arora explained. He added more importantly, the Member Business Lending cap, which limits their loan approvals to 12.25% of their assets, still handcuffs credit unions. “Until this changes – if it ever changes – credit unions will continue to struggle in small business lending.”

Separately, GlobalData studied point-of-sale lending, which provides consumers with instant-approval financing usually preceding a sale and continues to grow and take market share from credit card providers. According to GlobalData’s “Consumer Payments Survey 2018,” an average of 55% of consumers in Anglosphere markets said they used a credit card because it offered them a material benefit such as help in spreading the cost, added security, or rewards, whereas the remaining 45% simply used a credit card because they were comfortable with it.

Sean Harrison banking analyst at GlobalData commented; ‘’With 45% of consumers only using a credit card for no other reason than comfort, the opportunity for POS lenders is sizable, particularly when merchants are offering it at subsidized rates.”

GlobalData noted a number of factors driving the growth of POS lending including technology-enabled small contractors and merchants; store cards with high interest rates and merchants discovering POS lending as a key factor for some customers in closing the sale.