3 minutes
In 2007, Rohit Arora, CEO, and brother Ramit Arora, president, co-founded Biz2Credit.com as a marketplace to connect small businesses with lenders.
Biz2Credit acts like the CFO for the small businesses, says Arora, analyzing the business, offering free financial health checkups and ultimately matching the business with a lender.
In addition, the site publishes the Biz2Credit Small Business Lending Index to showcase trends. For example, in the January 2015 issue, the index reports that “big banks ($10 billion+ in assets) approved 21.3 percent of small business loan requests in January 2015, up from 21.1 percent in December 2014.” In January 2014, the big bank approval rate was 17.4 percent so it’s been steadily improving all year.
But small bank approvals are down. “For the third consecutive month, small banks are denying more than half of their loan requests. Further, lending approval rates by small banks dropped for the eighth month in a row as they approved 49.6 percent of loan requests from small business owners in January, which is slightly below December's mark of 49.7 percent.” The highest approval level for small banks in the past year was 51.6 percent in May 2014.
As for credit unions, approvals are stagnant at 43.2 percent in January, a slight drop from 43.3 percent the previous month. Credit unions have been in the 43 percent range for approvals in the past 12 months, with their highest rate of approval coming in at 43.7 in June 2014.
So it’s been static, Arora, says. Specialty banks are starting to come back, he adds. “People who would have gone to credit unions as first choice are starting to look at other options.”
Technology, or the lack of it, could be hurting CUs, he says. “Customers want a good online experience.”
Plus, “other [financial institutions] are doing more and more aggressive lending.”
What can credit unions do? Arora suggests three tactics.
- Invest more on the digital side. Go toward more shared or cloud services.
- Training: “If they want to get small business loans, credit unions need to invest more in training their people. Credit union staff are so used to the consumer side of the business,” he says.
- Focus: “Credit unions need to figure out if they really want to be in this space or not. As the economy comes back there will be increasing competition.” Credit unions need to be focused on this market if they want to compete in this space.
The outlook for small business loans is positive, says Arora. In the last six to seven months, Biz2Credit is seeing more approvals overall.
Plus, as the economy stabilizes, a lot of good small businesses are coming back and looking to expand, Arora says. “They’ve been in hunker-down mode. And now they want to borrow money to expand, grow and acquire.”
In addition, Arora sees potential for credit unions with President Obama’s immigration executive actions. “As it starts to take affect, we’ll see lots more small business activity,” he says. “Historically, immigrants have been the engine for growth in the United States. The last time we saw a major immigration reform occur was in 1986, which added $1.7 trillion to the U.S. economy over its next three years.”
“CUs have been friendlier to immigrants. It could be a big opportunity for CUs,” he adds.
Theresa Witham is a CUES editor.
