Loan approval rates made to small businesses by banks and other lenders have fallen significantly since their peak a year ago. The decline in loan approval rates to small businesses is noted in the latest Biz2Credit Small Business Lending Index.
These approval rates refer to non Paycheck Protection Program (PPP) loans. PPP loans are backed by the government, meaning there is little risk involved and banks are more willing to make them. Term loans, or SBA 7(a) loans carry greater risk, and therefore banks are less willing to approve them.
Biz2Credit Small Business Lending Index February 2021
In February 2021, small business loan approval percentages increased slightly to 13.3% from 13.2% in January 2021. This contrasts dramatically to the same time last year, when loan approval rates to small businesses from big banks stood at 28.3%.
Biz2Credit has been the leading processor of PPP applications in the United States since mid-January 2021. Its Small Business Lending Index is important as it shows trends in small business borrowing. For small businesses in the US, it provides important insight on the borrowing habits of other businesses, and what type of loans they would be likely to secure based on their own circumstances.
Securing Capital is Challenging for Small Businesses
Many small businesses are still feeling the pinch of the impact of the pandemic but are not eligible for PPP lending. As Biz2Credit CEO Rohit Arora comments:
““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.”
The results of the Index are based on primary data submitted by more than 1,000 small business owners who applied for funding on the Biz2Credit platform.
Credit Union Approval Rates in Decline
Biz2Credit’s report also shows how approval rates made by credit unions have also declined in recent months. A year ago, credit unions approved almost 40% of the applications they received. In February 2021, this figure was at 20.3% and slight fall from January 2021 when credit union approval rates stood at 20.5%.
The figures show the challenges that small businesses requiring funding are currently facing. It highlights the importance for small business owners to acquaint themselves with the funding that is available to them. Being equipped with the right support, resources and funding, small businesses are in a better position to navigate these testing times and overcome hurdles created by the pandemic.
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