Alternative Lenders Number One Source of Small Business Credit

Says Bank of American Institute in its December 2023 small business newsletter.

With the rapid increase of interest rates and regional US bank failures earlier in the year, there has been a meaningful tightening of credit conditions. 

As shown by the Senior Loan Officer Opinion Survey (SLOOS), the net percentage of surveyed banks that were tightening commercial and industrial (C&I) loans to small firms surged in the first three quarters of the year before easing slightly in 4Q. 

Note that a positive reading means there are more banks tightening standards than easing them. 

Even with the slight easing, the current levels are comparable to prior recession periods (2000 and 2008). 

Interestingly, despite credit conditions tightening for small businesses, our previous analysis suggests small business loan financing – as measured by the average amount of loan disbursement that is deposited into small business client accounts, per Bank of America internal data – has not slowed materially over the past year. Why might that be? 

In our view, while it is becoming harder for small businesses to access a bank loan, they have been turning to institutional lenders (i.e. private equity) or alternative lenders (i.e. fintech companies) for financing. 

December 2023 Bank of America Institute Small Business Checkpoint