That data comes from Biz2Credit’s Small Business Lending Index, which was released earlier today. It showed those banks with at least $10 billion in assets approved 13.5 percent of small business loan applications in May, up marginally from April’s 13.4 percent. Smaller banks approved 18.7 percent of applications in May, a jump from April’s 18.2 percent rate.
“Loan approvals by small banks rose 0.3 percent as banks start to assess the favorable economic conditions beginning to emerge as lockdowns ease and more and more people receive a COVID-19 vaccine,” said Biz2Credit CEO Rohit Arora. “Pent-up demand from consumers is an attractive narrative for small business owners to use as part of their justification for applying for financing. Banks, especially smaller community and regional institutions, are taking notice of this trend as they begin to open up their lending operations to the post-pandemic reality.”
Keep an eye out for June figures as the second round of Payroll Protection Program funding has ended, Arora advised.
“Businesses that are still reeling from the economic impact of the pandemic will have to look for other sources of funding,’ he explained. “Look for business loans — especially loans from online or digital providers — to see a jump in activity now that PPP is closed.”
Small businesses have been credited with much of the hiring which has reduced the unemployment rate from 6.1 percent to 5.8 percent. Gains in leisure, hospitality, education, health care, and social assistance are often due to smaller firms hiring people.
Credit union approval rates also crept up one-tenth of one percent in May to 20.4 percent while institutional lenders signed off on 23.6 percent of requests (up from 23.5 percent in April). Alternative lenders okayed 24.3 percent of applications in May and 24 percent even in April.
“Alternative lenders saw a significant increase in approval rates in May while at the same time handling an ever larger number of loan requests, thanks to the shift towards online finance in the small business space,” Arora said. “With the conclusion of PPP, banks are focusing on forgiveness and may not be ready to ramp up small business lending that is not government-backed.”
Arora added that borrowers will have to turn to non-bank sources including alternative lenders:
“These lenders are all starting to respond to the demand, and many will see their approval rates rise as customers who used to get loans from a bank are now looking to alternative sources of financing.”
The survey looked at loan requests from companies in business for at least two years who have credit scores higher than 680. Results are gleaned from more than 1,000 small business owners who applied for funding from Biz2Credit.