The approval percentage for small business loan applications at big banks (more than $10 billion in assets) rose three-tenths of a percent from 13.5% in June to 13.8% in July, according to the Biz2Credit Small Business Lending Index.
The figures do not reflect approval of Paycheck Protection Program (PPP) loans, which are made by the government, rather than by the banks themselves. However, the July figure shows an upward trend, even though approval rates are still far below the record highs from earlier in 2020 before the coronavirus pandemic hit.
“There was clearly an uptick in the economy, especially in the northeast in July,” Rohit Arora, CEO of Biz2Credit, said. “The big banks played a key role in PPP lending and are making other loans to their customers as some of them have exhausted their PPP funds. It will be interesting to follow lending at big banks as coronavirus spreads through the south and west regions of the country.”
The U.S. Bureau of Labor Statistics’ Jobs Report on Aug. 7 found that nonfarm payroll employment rose by 1.8 million in July, while the unemployment rate fell to 10.2%. The improvements in the labor market reflected the continued resumption of economic activity that was curtailed due to the COVID-19 pandemic and efforts to contain it. July’s job gains occurred in the leisure and hospitality, government, retail trade, business and professional services, and healthcare sectors.
The approval rate at small banks was 18.6% in July, up two-tenths of a percent from 18.4% in June. This figure is in stark contrast with February 2020, when small business loan approvals were at 50.3%.
“Regional and community banks made a lot of PPP loans to small businesses and are now making other types of loans to these new customers,” Arora said. “The smaller banks are now in a good position to resume making SBA 7(a) loans and other funding requests.”
Overall, the PPP lending program has provided nearly 5 million small businesses with more than $521 billion in potentially forgivable loans, directly ensuring 50 million American workers kept their jobs, according to a report by the SBA. The average loan size was $106,772, and 5,460 lenders participated in the program thus far.
Institutional lenders’ approval percentages increased to 21.9% in July, up from 21.6% in June.
“Institutional lenders, like the other types of lenders, are steadily climbing back after disastrous results in March and April,” Arora said. “They continue to play a strong role in small business lending.”
Loan approval rates among alternative lenders dropped three-tenths of a percent to 23.1%, down from 23.4% in June.
“Alternative lenders are struggling right now, some of them are not doing much lending. The numbers show it,” Arora said.
Credit unions approved 21.2% of loan requests in July, a slight drop from 21.35% in June.
“Credit unions are grappling and trying to get back in lending,” Arora said. “Many of them still lag in technology, and they struggle to keep up with other categories of lenders.
For the July index, Biz2Credit analyzed loan requests from companies 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 funding on Biz2Credit’s platform.