By: Julie Story
The recovery of the economy rests largely on the shoulders of small businesses who provide the country with innovations, jobs, tax revenue and increased spending. However, small businesses were perhaps affected the most by the economic collapse, and many are struggling to obtain the financing that is necessary to continue thriving or expanding.
Large banks have been largely absent from the business lending field as they seek to shield themselves from exposure and risk by limiting their loan portfolios. Smaller institutions, however, have stepped up to the plate and expanded their small business banking programs to help stimulate the economy.
The August Biz2Credit Small Business Lending Index reveals that overall business loan applications increased 4.3 percent. Big banks - defined as those with $10 billion or more in assets - approved 10.9 percent of financing applications, a decline from the 11.3 percent approval rate in July. Small bank lending approvals, in contrast, increased to 47.8 percent during this same period, up from 47.4 percent recorded in July. The rate is the highest it has been since Biz2Credit created the index in 2011.
While it appears that local banks are opening up their programs to small companies, there are opportunities to continue marketing to businesses as many are still obtaining more risky financing products from alternative lenders. These products tend to carry higher interest rates and less favorable terms, which could place many small businesses in jeopardy. As a result, financial institutions are encouraged to continue fueling resources into marketing small business marketing programs to keep businesses informed about financing options.
According to the report, business lending will prove crucial in the upcoming months, as small businesses request more funding to manage the rush of the holiday season. In addition, the results of the November election may also impact small businesses and their financing needs.