The lending spigots are opening a bit wider for small businesses in a development that could aid an accelerating recovery.
For the second-straight month, just 4% of small-business owners said all their credit needs were not met last month, the lowest rate since early 2008, according to a survey released last week by the National Federation of Independent Business.
Thirty-two percent said all their credit needs were satisfied, matching recent highs in November 2013 and September 2012.
“Banks aren’t as tough or as picky as they used to be,” says Ami Kassar, a loan adviser to small businesses. He adds the lending environment is still very challenging.
Small firms in particular are finding it easier to borrow from big banks with the lowest interest rates. The portion of small-business loans approved by large banks in December rose to 17.6% from 17.4% the previous month, according to an index compiled by Biz2Credit, which connects small businesses with lenders.
That’s the highest since Biz2Credit began tracking the data in early 2011 — when big banks approved just 12.8% of small-business loans — but about half of pre-recession levels.
The biggest reason for the increase is that small businesses can show lending officers several years of growing profits and cash flow since the end of the recession in June 2009, says Biz2Credit CEO Rohit Arora. “The bad years of 2009 and 2010 are going away,” he said.
And, he says, with home values climbing, many small-business owners are again able to use their home equity as collateral.
At the same time, banks are easing credit standards that tightened dramatically after the mid-2000s real estate crash and 2008 financial crisis. Nearly 12% of large banks surveyed by the Federal Reserve in October said credit standards for small firms eased somewhat in the previous three months, vs. none that said standards had tightened.
Nick Friedman, president of College Hunks Hauling Junk, a junk removal and moving franchiser, said that in the past four years, banks repeatedly turned down his request for a $100,000 line of credit to help pay expenses during the lean winter months.
About a month ago, he obtained a $350,000 line of credit from Fifth Third Bank, allowing him to hire several executives and add as many as 20 franchises this year. Five to eight a year is typical.
“I sensed (the bank) had eased their credit criteria,” Friedman said. “There was more breathing room.”
Robb Hilson, a small-business executive at Bank of America, said that with the economy growing more briskly, banks are seeking better returns on their money. “In this environment, we need to grow our earning assets,” he said.
In the past two years, the banking giant has hired 1,000 small-business loan officers.
“We’re having better conversations with small businesses,” Hilson says. He adds the bank is now better tailoring loans to firms’ needs and expanding its loan reviews beyond criteria such as credit scores to less quantifiable measures such bank account transactions.