Credit Calling: Where Should Your Business Go for a Bank Loan?

Business.com / Funding / Last Modified: February 22, 2017

Which lender are SMB owners more likely to seek credit from, and from which financial institution are they more likely to receive credit.

There are multiple ways for a small business owner to get the financing he or she needs to start or grow their company: small banks, large banks, credit unions, and online lenders.

But the question is, which lender are small business owners more likely to seek credit from, and from which financial institution are they more likely to receive approval?

The Small Business Credit Survey, conducted in 2015, asked roughly 3,500 businesses of 500 employees or less each to weigh in on the topic. As it turns out, small banks are playing quite a big role in the lending community.

Where Businesses Apply for Credit

The graph below illustrates the credit sources applied to by applicants and is categorized by their yearly revenue.

Graph illustrates credit sources applied to by applicants and is categorized by their yearly revenue

Related Article:Inside the Mind of the Bank: 4 Factors Affecting a Small Business Loan

Banks have the stigma of being tough on their loan applicants, so it may be quite surprising to see that small banks make up approximately half of all credit sources applied to by the surveyed companies.

Microbusinesses or businesses that bring in less than $100,000 a year, on the other hand, are more likely to be denied for a bank loan and attribute to the higher overall percentage of applications to credit unions and online lenders.

How Likely Are You to Get Approved?

The size of your company and the amount of time you’ve been in business plays a pretty big role in the approval of your loan application. This information is reflected in the chart below, where you can see that the larger the business, the more likely they are to get approved for a loan.

Chart showing larger the business, the more likely they are to get approved for a loan

Related Article: Capital Continues to Elude Small Businesses: What Can be Done?

You’ll also see that regardless of the revenue category a business may be in, small banks are shown to approve more applicants for financing than larger banks.

Seventy-six percent of all companies surveyed received at least some funding from small banks, with only 58 percent receiving approval for financing through a larger bank. So if your business is bringing in more than $10 million a year, you may be a shoo-in for a business loan from a small bank.

Are Business Owners Satisfied With Their Loans?

Chart showing percentage of businesses satisfied with their loansOut of the business owners who applied and were approved for financing through a small bank, 75 percent reported being satisfied. Business owners who were the least satisfied were those who received financing through online lenders, with only 15 percent reporting being satisfied.

Graph shows what caused such dissatisfaction in the applicant’s source of credit.

The above graph above shows what caused such dissatisfaction in the applicant’s source of credit. But keep in mind that, for this category, business owners were allowed to select more than one response and credit unions are not included due to lower numbers.

The satisfaction rate for small and large banks remains fairly consistent throughout with the exception of loan transparency. However, those who received financing from a small bank were the most satisfied as a whole.

Overall, the survey has shown that small banks received more loan applications, approved more applicants, and had a higher satisfaction rating than larger banks, online lenders, and credit unions. So if you seek financing for your small business, the data suggests that applying through a small bank is likely a great option.

It’s also worth noting that lenders across the board have increased their lending in 2015 as compared to previous years. In 2014, for example, one in three business owners were rejected for small business financing, as opposed to a one in five rejection rate for businesses who applied in 2015.

Lender increase over 2014 and 2015 years.

Related Article:5 Surprisingly Cheap Forms of Small Business Financing

After several years of a near-total shutdown of bank lending to small businesses in the wake of the 2008 fiscal crisis, it’s encouraging to see that the growth of the online alternative lending market has expanded the options available to small business owners.

As more and more small and large banks push to compete in this new market, we’re hopeful that the small business loan options available to small business owners both from large and small banks and from online lenders will continue to improve.

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