Small-business loan approval rates by community banks and non-bank lenders spiked in January to their highest levels in the past 12 months, according to the monthly Small Business Lending Index, which analyzes loan applications through Biz2credit.com, which connects borrowers with more than 1,100 lenders nationwide.This is obviously due to the strong demand that all alternative lenders are seeing in the marketplace. At American Finance Solutions, we have experienced a large spike in applications in the first quarter of 2012. Most of our competition is seeing the same as well.
Alternative lenders in particular -- Community Development Financial Institutions, accounts receivable financing companies, merchant cash advance companies, micro-lenders and others -- approved more than two-thirds of applications from potential borrowers according to Biz2credit. That compares with the approximately 47.5% of loan applications approved by small community banks and just 11.7% approved in January by banks with more than $10 billion in assets, Biz2Credit says.
So, I think an agent or funding company can safely say that MCA approval rates are well North of 70% compared to bank approval rates of approximately 12%. At AFS we also believe that the amount of capital that a business owner receives is also much higher with a merchant cash advance.
"Over the last three and a half years, a lot of banks have shrunk their branch network. That has disrupted the old relationship dynamic and created a huge vacuum in the market for working capital for businesses to run their day-to-day business," Biz2Credit CEO Rohit Arora says. That led to the rise of alternative lenders. Initially it was some of the CDFIs, micro-lenders and credit unions, types of lenders without much experience in such things as cash advances and factoring, Arora says.
"Over the last year what we are starting to see is that kind of funding is coming from more mainstream lenders because of all these different reasons. It is also creating the pressure on the banks and other institution to go out and start lending again to businesses," Arora says.
While there is definite pressure on big banks to open up their vaults, we do not expect any significant changes until well into 2013. Its a great time to be marketing the Merchant Cash Advance product and building a client-base!
