According to the latest Biz2Credit Small Business Lending Index, small business loan approval percentages at big banks dipped from 13.5% in April to 13.4% in May. Meanwhile, approval ratings at small banks remained at 18.7%.
“Bank lending is stalled right now. They are having a hard time getting new deposits, and when they do, they have to pay higher interest rates to get deposits. The banks are getting hit on both sides of the equation, so they are not lending,” Rohit Arora, CEO of Biz2Credit, said. “Many banks became complacent about lending and have high-cost structures. They need to become more efficient and get back on their game.”
Approval percentages at non-traditional lenders rose slightly last month. Institutional investors’ approval rates increased from 26.7% in April to 26.9% in May, while alternative lenders improved from 28.7% in April to 28.9% in May. Credit unions were stagnant at 18.9%.
“It is a tough time for small business borrowers,” Arora said. “Right now, SBA loans are the best bet from banks. However, the rates on 7(a) loans are about 12% right now, and they take up to two months to get processed. Businesses that need money quickly are searching online and turning to alternative lenders.”
Total nonfarm payroll employment increased by 339,000 in May, and the unemployment rate rose by 0.3 percentage points to 3.7%, according to the Jobs Report released by the U.S. Bureau of Labor Statistics. Job gains occurred in professional and business services, government, healthcare, construction, transportation and warehousing and social assistance.
“With high employment, rising oil prices and persistent inflation, there is a good chance that the Fed will once again hike interest rates another 25 bps in June or perhaps they will wait until July,” Arora said. “We can expect that the cost of capital will continue to rise for small business borrowers.”
To determine its Small Business Lending Index, Biz2Credit analyzed loan requests from companies in operation 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.