Loan Volumes Strong, Approvals Cautious in Small Business Finance Space

| By:


eye on your moneyIn this current environment, small business finance companies are proceeding cautiously.

“In 2022, the company’s turndown rate stood at 8%, but it has surged to 12% this year,” said David Miles, VP and Director of Credit for Eastern Funding. Eastern Funding primarily serves coin laundromats, grocery stores, and car washes but also operates two subsidiaries that focus on assets like commercial vehicles & tow trucks and fitness & wellness equipment. While Miles said that loan volume has remained strong, the percentage of transactions being turned down has increased.

“…I think that’s fairly indicative of the market or the environment that we’re currently in, which is high interest rates,” said Miles. “You have consumers that are carrying a lot of debt and it’s somewhat of a precursor to a potential downturn or recession.”

The circumstances are being felt all across the lending spectrum. According to a recent consumer lending study from the Federal Reserve, the overall rejection rate for credit applicants was 21.8% in June, the highest level in five years. That study looked primarily at mortgages, credit cards, and auto loans.

But in the commercial universe where Eastern Funding operates, the sentiment seems to be matching the shift in the numbers. On a recent quarterly earnings call, for example, Lightspeed CFO Asha Bakshani said of their MCA program, “There’s tons of demand. We’re just taking our time intentionally given the macro.” On unsecured business loans, Enova CEO David Fisher recently said that “we’re just not convinced the risk/reward is there right now, again, given the uncertainty in the economy, an extra few percentages of origination growth for us this year is pretty inconsequential.” Both Lightspeed and Enova are also still experiencing strong volume despite the conservative approach.

“We’ve definitely seen credit quality go down compared to prior years but that’s the main challenge,” said Miles of Eastern Funding. “And we want to make sure that especially in this environment, that we continue to make good loans, we make loans that don’t go to collections, that don’t go to work-out, and we don’t experience any losses across any of the three divisions.”

One challenge of being cautious, however, is communicating the situation to potential customers who may still be stuck in the mindset of 1-2 years ago.

“Our focus is on making sure that the people that do have credit authority, that they’re well aware of the environment that we’re currently in, and that there is enhanced risk just to do with the macroeconomic environment that we’re operating in,” Miles said.

Last modified: August 22, 2023
Anaya VanceAnaya Vance is a reporter for deBanked. Connect with me on LinkedIn.


Category: Business Lending

Home Business Lending › Loan Volumes Strong, Approvals Cautious in Small Business Finance Space


    VitalCap

    Fresh Funding

    Global Funding Experts

    Fox Business Funding

    Meridian Leads

    Highland Hill Capital

    National Funding

    Wynwood Capital Group

    Forward Financing

    Bitty Advance

    Paz Funding Source

    Velocity Capital Group

    Smart Business Funding

    BizFund

    Accord Business Funding

    ROK Financial

    Pearl Capital

    SOS Capital

    Vox Funding

    Balboa Capital

    Green Note Capital

    Splash Advance

    Total Merchant Resources

    Unique Funding Solutions

    Main Street Finance Group

    IAC - In Advance Capital

    Flash Advance