Loans to small business dropped in April for the first time in a year.  The decline in credit approvals was across the board, from big banks to small banks to credit unions. The rate held steady for alternative lenders. Both borrowers and lenders are proceeding with caution as the economy continues its tenuous “recovery.” The economic uncertainty, high oil prices and European credit crisis all play a roll to the slow down in small business lending.  Alternative commercial finance options, such as asset based lending, have remained steady and are a viable option for small businesses seeing funding during the continuing credit crunch.

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Source: American Banker, May 8 2012, by Alan Kline

The pace of small-business lending slowed in April as demand from borrowers weakened and lenders of all sizes approved fewer loans.

Total loan requests fell 5.4% in April when compared with March, according to an analysis of lending trends released Thursday by Biz2credit, a New York firm that matches borrowers with lenders. It was the first month-to-month drop in a year, Biz2credit said in a news release Tuesday.

Meanwhile, an analysis of loan applications found that loan approvals at large banks — those with $10 billion of assets or more — fell for the second straight month and that approval rates at smaller banks declined for the first time since August of last year.

Large banks approved 10.6% of loan requests, down from 10.9% in March and 11.7% in January and February. Small banks approved 45.9% of requests, compared to 47.6% in each of the prior two months.

Approval rates also declined slightly at credit unions, to 57.4%, and held steady at alternative lenders at 63%.

Rohit Arora, Biz2Credit’s chief executive, said that the slow pace of the economic recovery is causing both borrowers and lenders to “proceed with caution.”

“The disappointing April jobs report, in which only 115,000 new jobs were created and when the expectation was much higher, is an indication that the economy is slowing down,” Arora said. He added that high oil prices and an intensifying fiscal crisis in Europe have only added to the uncertainty.

Also contributing to the overall slowdown in small-business loans was the March expiration of a temporary 90% guarantee on Small Business Administration loans and the reinstatement SBA loan fees that Congress had temporarily waived in an effort to stimulate lending, Arora said. The guarantee level fell back to 75% in April and the SBA again began assessing fees equaling 1% to 3% of the total loan.

“This played a big part in the drop in loan demand and the reduced willingness of banks to grant funding requests,” Arora said.