Small business loan approval rates rebounded in May 2020: Biz2Credit Small Business Lending Index™
Improvement in approvals for companies applying for Non-CARES Act loans
NEW YORK, NY (June 9, 2020) — The approval percentage for small business loan applications at big banks ($10 billion+ in assets) rebounded from just 8.9% in April to 11.5% in May, according to the Biz2Credit Small Business Lending Index™ released today.
“Big banks, small banks, and all other categories of lenders saw their approval percentages rise in May – after a horrendous April,” said Biz2Credit CEO Rohit Arora, who oversees the monthly research. “Now that coronavirus cases are going down, the economy is beginning to reopen. I hope things get back to a ‘new normal’ quickly. Otherwise, many small businesses could fail.”
The May 2020 figure is still far below the record high rate in February, pre-coronavirus pandemic. The rates do not reflect Payroll Protection Program (PPP) loan approval rates; PPP loan approvals are made by the government, rather than by the banks themselves.
“The more than 2.5% jump was a pleasant surprise for big bank lending,” said Arora, one of the nation’s leading experts in small business lending. “Toward the end of May, the economy began to rebound from the beating it took at the hands of the coronavirus lockdown. Unemployment dropped from April’s Depression era-levels. Many economic factors are fluctuating tremendously since 2020 began.”
The approval rate at small banks climbed to 16.9% in May from the disappointing 11.8% in April. Just a few months ago, in February 2020, small business loan approvals were a robust 50.3%.
“While smaller banks process many PPP loan requests, they still receive non-PPP applications,” Arora said. “Regional and community banks are playing an important role in the recovery of small businesses.”
To date, the PPP lending program has provided more than 4.5 million small businesses well over $510 billion in potentially forgivable loans, directly ensuring 50 million American workers keep their jobs, according to a new report by the SBA on PPP loan approvals. The average loan size is $113,228 and 5,458 lenders are participating in the program, a 200% increase in the amount of agency lenders.
According to a recent National Federation of Independent Businesses (NFIB) survey, 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 have applied for a PPP loan, and 93% of those received one. The “vast majority of small business owners (67%) say the PPP loan has been “very helpful” in financially supporting their companies with another 14% calling the funding “moderately helpful.” Only 2% said that the PPP loan is not at all helpful, while 7% said that it is too early to tell.
Institutional lenders’ approval percentages bounce back 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 are remaining in the game even after poor approval rates in March and April,” Arora said. “Once the economy fully emerges from the coronavirus lockdown, institutional lenders will again become important players in the small business lending marketplace.”
Loan approval rates among alternative lenders jumped up to 20.5% after falling to just 15.2% in April.
“Some borrowers are seeking funding from alternative lenders because the turnaround time is so quick, and small business owners were desperate for cash,” Arora said. “Although they may not again reach pre-coronavirus levels, alternative lenders certainly play a role in small business lending.”
Credit unions approved 21.2% of loan requests in May, up from just 18.1% in April 2020.
The Treasury Department and SBA made some desperately needed adjustments, and that helped small businesses apply for – and receive – cash to spend. Credit unions that have their own digital loan application systems or that partnered with FinTech firms to enable online applications now have a big leg up on the competition.”
According to the Jobs Report issued by the U.S. Bureau of Labor Statistics on Friday, June 5, 2020, non-farm employment rose by 2.5 million in May. Additionally, the unemployment rate declined to 13.3%, reported. These improvements in the labor market reflected a limited resumption of economic activity that was curtailed 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, government employment continued to decline sharply.
“Small businesses drive much of the economy’s growth and new job creation. It’s a positive sign to see employment figures rise so sharply in May,” Arora said.
Founded in 2007, Biz2Credit has arranged more than $8 billion in small business financing. The company is expanding its industry leading Biz2X technology in custom digital platform solutions for banks and other financial institutions, investors, and service providers. Visit www.biz2credit.com or Twitter @Biz2Credit, Facebook, and LinkedIn.
About the Biz2Credit Small Business Lending Index
Biz2Credit analyzed loan requests from companies in business 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 funding on Biz2Credit’s platform.