Small business loan approval rates have fallen to record lows

NEW YORK, May 12, 2020 (GLOBE NEWSWIRE) — The approval percentage for small business loan applications to big banks (over $10 billion in assets) fell below double digits to just 8.9%down from 15.4% in March and an all-time high of 28.3% in February 2020, according to the Biz2Credit™ Small Business Loan Index published today.

The April 2020 figure was the lowest approval rate for major banks since the index began in January 2011. Rates do not reflect PPP loan approval rates; PPP loan approvals are made by the government, rather than the banks themselves.

“The drop was totally expected, but still surprising,” said Biz2Credit CEO Rohit Arora, who oversees the monthly research. “Until February, the economy was as strong as ever and big banks were lending with unprecedented frequency. Now unemployment is at Depression-era levels. The speed of this change is still hard to fathom. even two months later.

The approval rate at small banks also fell, falling to 11.8% in April, compared to 38.9% in March and 50.3% in February.

“Small banks were overwhelmed by a flood of PPP loan applications, but they still had non-PPP applications. Approvals for these loan applications are surprisingly low,” Arora said. “Regional and community banks are called upon to play an important role in reviving small businesses. We can expect this to continue, especially as PPP loans have government support.

Small institutions approved more than half (52%) of small businesses receiving loans and a total of 47% of the total second-round PPP loan volume of $88.91 billion, according to the latest figures from the SBA. In the second round, small banks accounted for more than 95.7% of lenders participating in the PPP (5,229 in total). Community lenders and small federally insured banks and credit unions with less than $10 billion in assets processed nearly 40% of all PPP loans (loan count 972,611) over the two funding, the SBA reported.

Institutional lenders‘ approval percentages dropped to 18.1% 41.2% in March and a record 66.5% in February.

“Institutional lenders may be hesitant to lend to small businesses at this time. They have become significant players in the small business loan market due to relatively high yields and low default rates. Unfortunately, that’s not the case right now,” Arora said. “In the long term, I expect them to regain their strength and become important players again.”

Falling loan approval rates among alternative lenders just fell 15.2%which rose from 30.4% in March to 55.9% in February.

“Because PPP loans only have a 1% interest rate and in many cases will be forgivable, companies have sought options other than financing from alternative lenders,” Arora said. “However, because of the speed with which they can make decisions and pour money into small business bank accounts, they are likely to be among the first to return to high levels of funding as the crisis unfolds. They may no longer reach pre-coronavirus levels, but there will still be a place for them in the small business loan market.

The approval percentage for credit unions reached a new record for the third consecutive month. Approved credit unions 18.1% funding requests in April, following March’s approval percentage of 23.2%, and 39.6% in February.

“Credit unions struggled in the business loan market for some time even before the coronavirus arrived,” Arora said. “A lot of them were shut out in the first round of PPP funding, and so companies that applied for loans with them didn’t have much luck. The Treasury Department and the SBA made some changes, so that the figure could increase next month.Credit unions that have their own digital loan application systems or that have partnered with FinTech companies to enable online applications now have a leg up on the competition.

According to Report on the work released on Friday, May 8, 2020, total non-farm payroll employment fell by 20.5 million in April. The unemployment rate, which was well below 4% for most of the past two years, rose to 14.7%, the US Bureau of Labor Statistics reported. Changes to these measures reflect the impact of the coronavirus (COVID-19) pandemic. Employment fell sharply in all major industrial sectors, but was particularly heavy in the travel, leisure and hospitality sectors.

“These economic numbers underscore the importance of getting capital into the hands of small business owners quickly,” Arora said. “There is little time left to act to save America’s small businesses for the foreseeable future.”

About Biz2Credit Small Business Lending Index

Biz2Credit analyzed loan applications from businesses that had been in business 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 financing on the Biz2Credit platform.

About Biz2Credit

Founded in 2007, Biz2Credit has arranged over $3 billion in small business financing. The company extends its cutting-edge technology into customized digital platform solutions for banks and other financial institutions, investors and service providers. Visit www.biz2credit.com or Twitter @Biz2Credit, Facebookand LinkedIn.

Media Contact: John Mooney, (908) 720-6057, [email protected]