Biz2Credit Analysis of Bank Failures from 2009 to 2014 Identifies "Credit Desert" in the Southeast and Documents Alternative Lending

Bank Funding of Small Businesses Dried Up During and After Recession, According to Study

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The failure of so many small banks in Georgia and in Florida created a credit desert.

New York, NY (PRWEB) August 21, 2014

Biz2Credit, the leading online credit marketplace, today released the results of a study it made of bank failures sorted by state and their impact on the small business lending marketplace.

"The failure of so many small banks in Georgia and in Florida created a credit desert," said Rohit Arora, CEO of Biz2Credit, who oversaw the research. "The housing market bust hit particularly hard in the Southeast, which resulted in bank failures and risk averse lending behaviors by those banks that survived. Thus, small business owners were stymied in their attempts to secure capital -- even when their companies had solid credit scores."

A result of the bank reluctance to fund small business ventures was the rise of alternative lenders -- merchant cash advance, factors and other non-bank entities -- in the marketplace. While these lending institutions made financing available, often the money came at a high interest rate.

"As the U.S. Federal Reserve holds its annual meeting in Jackson Hole, Wyoming, small business finance and the evolving credit marketplace will likely be one of the topics discussed," Arora added. "Our research shows that many small business owners were caught between a rock and a hard place. If they needed money, many times the only willing lenders were cash advance companies that charged interest rates of 30 to 40 percent. Borrowing money at those rates and terms is not a sustainable, long-term funding option."

The states with the most bank failures were: 1) Georgia: 82 failures (20.5% of U.S. total); 2) Florida: 68 failures (17.0%); 3) Illinois: 55 (13.75%); 4) California: 34 failures (8.5%); 5) Minnesota: 21 failures (5.25%); 6) Washington: 18 failures (4.5%); 7) Arizona:15 failures (3.75%); 8) Missouri: 14 failures (3.5%); 9) Michigan: 12 failures (3.0%); and 10) Texas: 9 failures (2.25%).

The study found that the top four states with the largest number of bank failures -- Georgia, Florida, Illinois and California -- received 40% of the total alternate funding amount on Biz2Credit.com. Other key findings of the Biz2Credit "Credit Desert" Report:

  • Although a greater number of loans (24.3%) were granted to companies in business between 25-50 months (roughly 2-4 years) in business, the funded amount was higher (33.0%) for companies in operation for 51-100 months (roughly 4-8 years).

"The fact that older businesses received more money demonstrates that even alternate lenders were hesitant to make loans to younger companies in the Credit Desert," Arora explained.

  • The small businesses in operation for 51-100 months were the most successful in securing capital. A shade more than 33% percent of borrowers who received funding through Biz2Credit were between 4 and 9 years old. Companies in operation for one year or less, accounted for 7.5% of approved loans, while those in operation for 13-24 months secured 7.8% of the total number of deals funded through Biz2Credit. Companies aged 2-4 years accounted for 16.5%, while firms older than 10 years comprised 19.8% of the funded deals.

In terms of businesses by age of operation (in months) and amounts, the Biz2Credit determined that companies in existence:

0-12 (1 yr or less) were granted $16,382,589 (7.5% of alternative lending total on Biz2Credit.com)
13-24 (1-2 yrs) were granted $17,112,963 (7.8% of alternative lending total on Biz2Credit.com)
25-50 (2-4 yrs) were granted $36,128,759 (16.5% of alternative lending total on Biz2Credit.com)
51-100 (4-9 yrs) were granted $72,552,888 (33.0% of alternative lending total on Biz2Credit.com)
101-150 (9-10 yrs) were granted $34,213,664 (15.6% of alternative lending total on Biz2Credit.com)
151-250 (10 yrs+) were granted $43,234,368 (19.8% of alternative lending total on Biz2Credit.com)

  • Companies with credit scores between 601 and 700 comprised about half of alternative lending deals arranged by Biz2Credit, while companies with credit scores between 651 and 750 received the higher percentages of successfully funded amounts:

500-550 score: 230 companies received 5.9% of loans with amounts totaling $7,769,900 (3.9%)
551-600 score: 977 companies received (25.3%) of loans with amounts totaling $20,093,460 (10.0%)
601-650 score: 744 companies received (19.2%) of loans with amounts totaling $31,160,856 (15.6%)
651-700 score: 1,223 companies received (31.6%) of loans with amounts totaling $64,110,049 (32.1%)
701-750 score: 602 companies received (15.6%) of loans with amounts totaling $69,717,464 (34.9%)
751-800 score: 87 companies received (2.25%) of loans with amounts totaling $6,804,860 (3.4%)
801-850 score: 2 (0.05%) of loans with amounts totaling $131,000 (0.07%)

States hit hard by the housing market bust -- including Georgia and Florida in the Southeastern "Credit Desert" -- saw larger numbers of alternative lenders. The states with the most alternative lending firms were: California: 34; Pennsylvania: 32; Florida and New Jersey: 31; Georgia, Alaska, Arizona, Delaware, Illinois, New York, and South Carolina: 30

To see infographics related to the Credit Desert report, click here.

About Biz2Credit
Founded in 2007, Biz2Credit has arranged more than $1.2 billion in small business funding throughout the U.S. and is widely recognized as the #1 online credit resource for startup loans, lines of credit, equipment loans, working capital and other funding options. Using the latest technology, Biz2Credit matches borrowers to financial institutions based on each company's unique profile -- completed in less than four minutes -- in a safe, efficient, price-transparent environment. Biz2Credit’s network consists of 1.6 million users, 1,300+ lenders, credit rating agencies such as D&B and Equifax, and small business service providers including CPAs and lawyers. Visit http://www.biz2credit.com, follow on Twitter @Biz2Credit, and Facebook at http://www.facebook.com/biz2credit.


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