Small business loan approval percentages at big banks (or those with more than $10 billion in assets) climbed slightly from 13.4% in April to 13.5% in May, according to the latest Biz2Credit Small Business Lending Index. In addition, approvals at small banks jumped from 18.2% in April to 18.7% in May.
“Loan approvals by small banks rose 0.3% as banks start to assess the favorable economic conditions beginning to emerge as lockdowns ease and more and more people receive a COVID-19 vaccine,” Rohit Arora, CEO of Biz2Credit, said. “Pent-up demand from consumers is an attractive narrative for small business owners to use as part of their justification for applying for financing. Banks, especially smaller community and regional institutions, are taking notice of this trend as they begin to open up their lending operations to the post-pandemic reality.”
According to Biz2Credit, next month’s lending figures will be significant now that the federal government’s Paycheck Protection Program has completed its second round.
“Businesses that are still reeling from the economic impact of the pandemic will have to look for other sources of funding,’ Arora said. “Look for business loans — especially loans from online or digital providers — to see a jump in activity now that PPP is closed.”
Total nonfarm payroll employment rose by 559,000 in May and the unemployment rate declined by 0.3 percentage points to 5.8%, according to the U.S. Bureau of Labor Statistics. Notable job gains occurred in leisure and hospitality, public and private education, and healthcare and social assistance.
Credit unions edged up from a 20.3% approval rate in April to a 20.4% rate in May, while institutional lenders approved 23.6% of funding requests in May, up slightly from 23.5% in April. In addition, alternative lenders approved 24.3% of funding applications in May, up from 24% in April.
“Alternative lenders saw a significant increase in approval rates in May while at the same time handling an ever-larger number of loan requests thanks to the shift towards online finance in the small business space,” Arora said. “With the conclusion of PPP, banks are focusing on forgiveness and may not be ready to ramp up small business lending that is not government-backed.
“Borrowers will have to turn to non-bank sources of funding, including alternative lenders, institutional lenders and credit unions. These lenders are all starting to respond to the demand, and many will see their approval rates rise as customers who used to get loans from a bank are now looking to alternative sources of financing.”
Biz2Credit analyzed loan requests from companies in business more than two years with credit scores of more than 680 for its small business lending index. The results are based on primary data submitted by more than 1,000 small business owners who applied for funding on Biz2Credit’s platform.
