Small businesses are struggling to get the non-government money they need from banks to stay open, according to a new index. This at a time when they need it most.
Specifically, the approval rate for small business loans fell to 8.9% in April from a record high (28.3%) in February.
This is the lowest approval rating for SME applications to major banks since The Biz2Credit™ Small Business Loan Index started the report in January 2011.
The news is not better with the smaller banks. That approval rating dropped to 11.8% in April from 50.3% in February. The same goes for other lenders and even credit unions.
Biz2Credit Loan Index April 2020
“Institutional lenders may be hesitant to lend to small businesses at this time,” Biz2Credit CEO Rohit Arora said in a press release.
“They have become big players in the small business loan market due to relatively high yields and low default rates. Unfortunately, this is currently not the case. »
The index reports that even the approval rate among alternative lenders was low. This is despite the fact that they are often the people that SMEs turn to for loans during difficult times. The rate here was just 15.2% in April. That’s down from 30.4% in March and a high of 60% in February.
At all levels
This slowdown is generalized. It’s not totally unexpected, but it’s still a shock. Banks regularly lent money until February. The economy was strong and most indicators were good until COVID 19 hit.
Overall, bankers’ confidence has been shaken by the spike in unemployment caused by the coronavirus. By early May, the rate had risen to 14.7%. That’s down 4% where it was for two years.
These numbers are outside of Paycheck Protection Program (PPP) approval rates. The government approves them. Small business lending has been dominated by the processing of these loans recently. They come with a 1% interest rate and might be forgivable. This is apart from the rates and requirements of more traditional loans.
PPP Loan Applications
“Smaller banks are overwhelmed with PPP loan applications,” Arora said. “Still, approvals for these are low.”
Community banks are invited to play an important role.
“We can expect this to continue, especially as PPP lending has government support.”
He also stressed that the situation was urgent.
“Providing capital to small business owners quickly is important,” he said. “We must act to save America’s small businesses.”
For the index, Biz2Credit reviewed loan applications from businesses over two years old with credit scores above 680. The figures come from over 1,000 small business owners who applied for funding on the platform. Biz2Credit.
Founded in 2007, Biz2Credit is responsible for over $3 billion in small business financing. The company uses its leading technology for digital platform solutions in financial institutions, with investors and service providers. Visit www.biz2credit.com or Twitter @Biz2Credit, Facebook and LinkedIn.