According to a new index, small businesses are having a hard time getting the non government money they need from banks to stay open. This at a time when they need it the most.
Specifically, the small business loan approval rate dropped to 8.9% in April from an all time high (28.3%) in February.
That’s the lowest approval rating for SMB’s applying to big banks since The Biz2Credit Small Business Lending Index™ began the report in January 2011.
The news is no better with small banks. That approval rate has plummeted to 11.8% in April, down from 50.3% in February. The same goes for other lenders and even credit unions.
Biz2Credit Lending Index April 2020
“Institutional lenders may be shying away from lending to small businesses at the moment,” Biz2Credit CEO Rohit Arora said in news release.
“They became important players in the small business lending marketplace because of relatively high yields and low default rates. Unfortunately, this is not the case right now.”
The index reports even the approval rate among alternative lenders was low. This in spite of the fact these are often the people SMB’s turn to for loans during hard times. The rate here was only 15.2% in April. That’s down from 30.4% in March and a high of 60% in February.
Across The Board
This downturn is right across the board. It’s not totally unexpected but still comes as a shock. Banks were lending money up until February consistently. The economy was strong and most indicators were good until COVID 19 struck.
Overall, bankers’ confidence has been shaken by the unemployment spike caused by the coronavirus. As of early May, the rate had risen to 14.7%. That’s from the low 4% where it had been for two years.
These numbers are outside the approval rates for the Paycheck Protection Program (PPP). The government approves those . Small business lending has been dominated by processing these loans recently. They come with a 1% interest rate and might be forgivable. That’s outside the rates and requirements for more traditional loans.
PPP Loan Requests
“Smaller banks are overwhelmed by PPP loan requests,” Arora said.“Still the approvals for these are low.”
Community banks are being asked to play a large role.
“We can expect this to continue, particularly since the PPP loans come with government backing.”
He also stressed the situation was urgent.
“It’s important to get capital to small business owners quickly,” he said. ““We need to act to save America’s small businesses.”
For the Index, Biz2Credit looked at loan applications from businesses over two years old with credit scores above 680. The numbers come from over 1,000 small business owners who applied for funding on Biz2Credit’s platform.
Founded in 2007, Biz2Credit is responsible for more than $3 billion in small business financing. The company is using its industry-leading technology for digital platform solutions in financial institutions, with investors, and service providers. Visit www.biz2credit.com or Twitter @Biz2Credit, Facebook, and LinkedIn.