Small business loan approval percentages at big banks (more than $10 billion in assets) rose slightly to 13.3% in February from 13.2% in January 2021, according to the latest Biz2Credit Small Business Lending Index. In comparison, in February 2020, big banks approved 28.3% of the funding requests they received.
“Traditional big bank lending inched up ever so slightly in February. Most of the big banks are willing to make Paycheck Protection Program (PPP) loans that are backed by the government, so there is very little risk to them,” Rohit Arora, CEO of Biz2Credit, said. “The big banks are less willing to make term loans or SBA 7(a) loans to anyone but their own customers or companies that are not truly small.”
Biz2Credit, which has been a processor of PPP applications since mid-January, reported that PPP loan requests have represented the overwhelming percentage of applications made via its online platform in 2021.
The Bureau of Labor Statistics reported nonfarm payroll employment rose by 379,000 in February, and the unemployment rate was little changed at 6.2% in its recent Jobs Report, as the labor market continues to reflect the impact of the coronavirus (COVID-19) pandemic. In February, most of the job gains occurred in leisure and hospitality, with smaller gains in temporary help services, healthcare and social assistance, retail trade, and manufacturing. Many of these jobs are created by small businesses, according to Biz2Credit.
Small banks’ approvals slipped a notch to 18.2% in February compared with the 18.3% approval rate in January 2021. In contrast, small banks granted more than half (50.3%) of their small business loan applications in February 2020.
“Approvals of traditional business loans and SBA loans at small banks are less than half of what they were a year ago,” Arora said. “Many businesses are hurting right now. Most that are coming to us qualify for PPP funding because their revenues dropped dramatically in 2020 after the pandemic hit.”
Credit unions slipped two-tenths of a percent from a 20.5% approval rate in January to a 20.3% rate in February 2021. In February 2020, credit unions approved 39.6% of the applications they received.
“Like banks, credit union approval percentages are much lower than they were a year ago,” Arora said.
Two categories of non-bank lenders rose slightly last month. Institutional lenders approved 23.1% of funding requests in February, up one-tenth of a percent from 23% in January. Meanwhile, approval rates among alternative lenders rose one-tenth of a percent from 23.7% in January 2021 to 23.8% in February 2021.
“These figures highlight the challenges for small companies in search of capital. In February 2020, institutional lenders approved nearly two-thirds (66.5%) of their funding requests, and alternative lenders granted nearly six-in-ten applications,” Arora said. “Business owners are still hurting, and millions of them are applying for PPP loans. The companies that did not experience 25% decline in revenues are ineligible for the PPP and thus have to apply for more traditional types of funding. Securing capital is a challenge for them at the moment.”
Biz2Credit analyzed loan requests from companies in business more than two years with credit scores above 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.
