Business loan approval for small businesses tanked in April, according to a report. The driver is higher interest rates and banks tightening up their books in the volatile market. According to Biz2Credit Small Business Lending Index, loan approval dropped from 13.8% in March to 13.5% in April. For smaller banks, the approval rates of business loan applications at also dropped from March’s amount of 19.1% to 18.7% in April.
Rohit Arora, CEO of Biz2Credit, said the instability of the banking system goes beyond the recent failures, staing that other midsize and regional banks may also be in trouble as business accounts continue to pull their money from these banks and put them into larger banks or GSIBs – which are deemed to be impervious to the crisis.
“While we do not have a full bank run yet, these developments hurt the banks’ ability to lend to small businesses,” said Arora. “The FDIC insures deposits up to $250,000, which is a relatively small amount for commercial accounts and leaves some deposits uninsured. The vast amount of uninsured deposits in the banking system raises the likelihood of bank runs in the future. This is bad not only for small businesses, but for the economy as a whole.”
Addressing the rate increases, Arora said that while the central bank is signaling that this may be the last increase this year, interest rates are at their highest levels since 2007.
While traditional banks are backing away from credit markets, Biz2Credit reports that alternative lenders are working to fill the void.
The report states that alternative lenders rose by 28.7% in April, up from 28.4% in March, and institutional investors approved 26.7% of funding requests in April, up from 26.5% in March.
