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October index CUs small lenders fill biz lending gap
NEW YORK (11/17/11)--Credit unions, community development financial institutions (CDFIs), microlenders and others approved 61.8% of funding requests for small business financing applications surveyed in October, an increase from the 61.5% approval rate recorded in September, according to the Biz2Credit Small Business Lending Index.

That compares with 9.3% approvals from large banks (with assets of $10 billion or more) in October, a slight increase from September's 9.2%. Small business loan approvals at big banks have not risen above the 10% rate since April, said the

Smaller lenders continue to fill the vacuum left by banks and traditional financial institutions, said the company. The index is an analysis of 1,000 loan applications on

Loan approvals by smaller banks increased to 46.3% from September's 45.1%--the highest increase this year.

"Big banks continue their reluctance to lend money," said Biz2Credit CEO Rohit Arora. "The causes of this cautiousness include the continuing global financial crisis, as well as U.S. policy uncertainty and the impact of Dodd-Frank Wall Street Reform Act, which tightened regulations," Arora said.

Arora noted that the Occupy Wall Street movement is making an impact and said the influx of deposits credit unions gained from disgruntled bank customers who switched institutions impacts small business borrowing because credit unions now have more money to lend.

The index also discovered that 17% of small companies surveyed reported revenue growth of 5% or more through the first 10 months of the year. However, 25% of potential small business borrowers said their sales remain flat.

The index also identified five reasons small business borrowers haven't received funding:

  • Decline in sales: More than 68%  of small businesses said sales declined in the first nine months of 2011;
  • Declining profitability: Profitability declined at more than 86% of small businesses the past two years;
  • Stricter bank underwriting criteria;
  • Big banks' uncertainty, which  is leading to increased dissatisfaction among small business owners; and
  • Avoidance by small business owners who believe they won't get a loan or that the process is too time-consuming.

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