The approval percentage for small business loan applications at big banks ($10 billion+ in assets) rose three-tenths of a percent from 13.5% in June to 13.8% in July, according to the Biz2Credit Small Business Lending Index™ released today.
The figures do not reflect approval of Paycheck Protection Program (PPP) loans, which are made by the government, rather than by the banks themselves. However, the July figure shows an upward trend, even though approval rates are still far below the record highs earlier in 2020 before the coronavirus pandemic hit.
“There was clearly an uptick in the economy, especially in the northeast in July,” said Biz2Credit CEO Rohit Arora, who oversees the monthly research. “The big banks played a key role in PPP lending and are making other loans to their customers as some of them have exhausted their PPP funds”
“It will be interesting to follow lending at big banks as coronavirus spreads through the south and west regions of the country,” added Arora, one of the nation’s leading experts in small business lending.
The U.S. Bureau of Labor Statistics’ Jobs Report on August 7 found that nonfarm payroll employment rose by 1.8 million in July, while the unemployment rate fell to 10.2%. The improvements in the labor market reflected the continued resumption of economic activity that was curtailed due to the COVID-19 pandemic and efforts to contain it. July’s notable job gains occurred in the leisure and hospitality, government, retail trade, business and professional services, and health care sectors. Many of those jobs are created by small businesses.
The approval rate at small banks was 18.6% in July, up two-tenths of a percent to from 18.4% in June. This figure is in stark contrast with February 2020, when small business loan approvals were a robust 50.3%.
“Regional and community banks made a lot of PPP loans to small businesses and are now making other types of loans to these new customers,” Arora said. “The smaller banks are now in a good position to resume making SBA 7(a) loans and other funding requests.”
Overall, the PPP lending program has provided nearly 5 million small businesses with more than $521 billion in potentially forgivable loans, directly ensuring 50 million American workers kept their jobs, according to a report by the SBA. The average loan size was $106,772, and 5,460 lenders participated in the program thus far. Congress passed legislation that was later signed by President Trump.
Institutional lenders’ approval percentages increased to 21.9% in July, up from 21.6% in June.
“Institutional lenders, like the other types of lenders, are steadily climbing back after disastrous results in March and April,” Arora said. “They continue to play a strong role in small business lending.”
Loan approval rates among alternative lenders dropped three-tenths of a percent to 23.1%, down from 23.4% in June.
“Alternative lenders are struggling right now, some of them are not doing much lending. The numbers show it,” Arora said.
Credit unions approved 21.2% of loan requests in July, a slight drop from 21.35% in June, a slight increase 21.2% in May 2020.
“Credit unions are grappling and trying to get back in lending,” Arora said. “Many of them still lag in technology, and they struggle to keep up with other categories of lenders.