Small business loan approval rates continue to rise alongside labor costs

Small business borrowers are grabbing higher loan approval rates to expand and expand their businesses, keeping unemployment rates steady amid rising labor costs.

This was the main conclusion of the sector analysis carried out by the small business lender Biz2Creditwhich analyzed data submitted by 1,000 small business owners who applied for funding through its platform.

The lender analyzed loan applications from businesses that had been in business for more than two years with credit scores above 680.

Positive approval rates

In June 2022, large banks (with assets over $10 million) approved 15.4% of all small business loans, up 0.1% from the previous month.

In the same month, small banks approved 21.1% of loans, according to the platform’s Small Business Lending Index.

On this front, the approval rating fared slightly better than that of incumbent peers, rising 0.2% from May.

Data from the platform indicates that the number of loans approved by banks has increased every month this year.

Non-bank lenders

As the data suggests, non-bank lenders continue to lead the way in lending to small businesses.

Institutional lenders, such as lending associations, approved 25.6% of loan applications in June, up a tenth of a percent from 25.5% of loan applications in May.

Similarly, alternative lenders, which generally operate as private companies, approved 27.1% of small business loans granted to them in June, which, like small banks, was a figure up from 0. .2% compared to the previous month.

However, as the data shows, not all non-bank lenders raised their lending rates last month, as in fact the number of loans approved by credit unions rose from 20.6% in May to 20.5% in June.

Rohit Arora

Reflecting on his findings, the company’s CEO, Rohit Aroracomments that while nowhere near pre-pandemic approval percentages, these latest numbers are “positive signs”.

“As the cost of capital for small businesses increases because most small business financing is variable rate, borrowers need capital for growth,” he added. “Fortunately, they can find it from various loan sources.”

Labor loans

The company compared its findings to other industry variables to explain how these loans are used.

Despite the continued burden of large resignation from the financial services sector in particular, data suggests that these loans are being used by smaller businesses to expand their industrial footprint, particularly in the case of employment.

According to US Bureau of Labor Statistics‘ report, which was finally released on July 8, 2022 almost in parallel with the above-mentioned Biz2Credit results, total non-farm payroll employment increased by 372,000 in June, with the unemployment rate remaining optimistic at 3.6 %.

Nonfarm payrolls is a monthly statistic that records the number of people employed by U.S. manufacturing, construction, and goods companies.

Notable employment gains were recorded in professional and business services, recreation and hospitality, and health care. Many of these jobs are created by small businesses.

“With such a low unemployment rate, small business owners are still struggling to find workers. This, naturally, drives up the cost of labor as demand outstrips supply,” says Arora. “Rising labor costs, combined with inflation of 8.6% in May 2022, continue to put financial pressure on small businesses.”