Small business loan approval rates rebounded in May 2020:
NEW YORK, June 09, 2020 (GLOBE NEWSWIRE) — The approval percentage for small business loan applications in big banks ($10 billion+ in assets) rebounded just 8.9% in April to 11.5% in May, according to Biz2Credit™ Small Business Loan Index published today.
“Big banks, small banks and every other lender category saw their approval percentages rise in May – after a terrible April,” said Biz2Credit CEO Rohit Arora, who oversees monthly research. . “Now that coronavirus cases are declining, the economy is beginning to reopen. Hopefully things will quickly return to a ‘new normal’. Otherwise, many small businesses could fail.
The May 2020 figure is still well below the all-time high in February, before the coronavirus pandemic. Rates do not reflect Payroll Protection Program (PPP) loan approval rates; PPP loan approvals are made by the government, rather than the banks themselves.
“The jump of more than 2.5% was a pleasant surprise for lending from big banks,” said Arora, one of the country’s leading small business lending experts. “Towards the end of May, the economy began to rebound from the blows it suffered at the hands of the coronavirus lockdown. Unemployment fell from April Depression-era levels. Many economic factors have been fluctuating wildly since the start of 2020.”
The approval rate at small banks climbed to 16.9% in May compared to the disappointing 11.8% in April. Just a few months ago, in February 2020, small business loan approvals hit a solid 50.3%.
“While smaller banks process many PPP loan applications, they still receive non-PPP applications,” Arora said. “Regional and community banks play an important role in the recovery of small businesses.”
To date, the PPP Loan Program has provided more than 4.5 million small businesses with well over $510 billion in potentially repayable loans, directly guaranteeing that 50 million American workers keep their jobs, according to a new report from the SBA on PPP loan approvals. The average loan size is $113,228 and 5,458 lenders participate in the program, a 200% increase in the number of agency lenders.
According to a recent survey by the National Federation of Independent Businesses (NFIB), PPP loans, which are administered by the SBA, have had a largely positive impact on small businesses. The survey found that more than three-quarters of eligible businesses applied for a PPP loan, and 93% received one. The “vast majority of small business owners (67%) say the PPP loan has been ‘very helpful’ in supporting their businesses financially, with a further 14% rating the financing as ‘moderately helpful’. Only 2% said the PPP loan was not helpful at all, while 7% said it was too early to tell.
Institutional lenders‘ approval percentages bounced to 21.4% in May, after posting a disappointing 18.1% in April.
“Institutional lenders hit a record high of 66.5% in February, but they’re still in the game even after low approval rates in March and April,” Arora said. “Once the economy fully emerges from the coronavirus shutdown, institutional lenders will once again become significant players in the small business loan market.”
Loan approval rate among alternative lenders jumped up 20.5% after falling to just 15.2% in April.
“Some borrowers are seeking financing from alternative lenders because the turnaround time is so quick and small business owners were desperate for cash,” Arora said. “Although they may no longer reach pre-coronavirus levels, alternative lenders are certainly playing a role in small business lending.”
Approved credit unions 21.2% loan applications in May, compared to only 18.1% in April 2020.
The Treasury Department and the SBA made desperately needed adjustments, which helped small businesses apply for — and receive — money to spend. Credit unions that have their own digital loan application systems or have partnered with FinTech companies to enable online applications now have a big leg up on the competition.
According to the jobs report released by the U.S. Bureau of Labor Statistics on Friday, June 5, 2020, nonfarm employment increased by 2.5 million in May. Additionally, the unemployment rate fell to 13.3%, reported. These improvements in the labor market reflected a limited recovery in economic activity that was halted in March and April due to the coronavirus pandemic. In May, employment rose sharply in leisure and hospitality, construction, education and health services, and retail trade. However, public employment continued to fall sharply.
“Small businesses are the source of much economic growth and the creation of new jobs. It’s a positive sign to see the employment numbers rise so strongly in May,” Arora said.
About Biz2Credit Small Business Lending Index
Biz2Credit analyzed loan applications from businesses that had been in business for more than two years with credit scores above 680. The results are based on primary data submitted by more than 1,000 small business owners who applied for financing on the Biz2Credit platform.
Founded in 2007, Biz2Credit has arranged over $3 billion in small business financing. The company extends its cutting-edge technology into customized digital platform solutions for banks and other financial institutions, investors and service providers. Visit www.biz2credit.com or Twitter @Biz2Credit, Facebook and LinkedIn.