Small business loan approval percentages at big banks ($10 billion+ in assets) fell again, dropping from 13.2% in August to 13.1% in September, according to the latest Biz2Credit Small Business Lending Index released today. Big bank lending to small businesses has dipped every month since June 2022.

“Securing a small business loan from a big bank is certainly challenging, and I don’t see that changing much in the coming months,” said Rohit Arora, CEO of Biz2Credit and one of the nation’s leading experts in small business finance. “Your chances of obtaining small business financing from a regional or community bank are much higher.”

“Many big banks are restructuring. They are closing branches and laying off people. I expect that they will continue to shrink,” added Arora, a pioneer in fintech. “Overall, they prefer to do bigger deals involving larger amounts of money rather than focus on small business loans.”

Small banks are still more reliable sources of small business loans because they typically process more government-backed SBA loans that reduce the lenders’ exposure to risk. Regional and community banks continue to see approval percentage increases, rising from 19.1% in August to 19.3% in September.

“Lending at regional and community banks has slowly but surely been increasing,” Arora said. “Smaller banks process a lot of government-backed SBA loans, which reduce their exposure to risk. A lot of these banks have been digitizing their business loan application process, which makes SBA lending even more attractive to them.”

The approval rates of Institutional investors inched upward from 27.4% in August to 27.5% in September, while alternative lenders also increased from 29.5% in August to 29.7% in September.

“Non-bank alternative lenders remain the most reliable sources of capital for small businesses, despite the higher rates of interest that they charge,” Arora said. “For many businesses, the cost of capital is not the determining factor. Rather, speed and the higher likelihood of a positive response are what’s most important.”

Approval rates at credit unions rose slightly from their all-time low number of 19.8% in August to 19.9% in September.

Total nonfarm payroll employment rose by 336,000 in September, and the unemployment rate was unchanged at 3.8%, according to Jobs Report released by the U.S. Bureau of Labor Statistics on Friday, Oct. 6. Job gains occurred in leisure and hospitality; government; health care; professional, scientific, and technical services; and social assistance. Many of these jobs are created by small businesses.

To determine its Small Business Lending Index, Biz2Credit analyzed loan requests from companies in operation for more than two years with credit scores above 680. The results are based on primary data submitted by more than 1,000 small business owners who applied for funding on Biz2Credit's platform.