Small Business Loan Approval Rates Plunged in March
May 6th, 2020 @ 2:36 PM by Amber Nelson
As the coronavirus outbreak shutdown businesses across the country, banks and lenders got skittish about making small business loans, according to data from Biz2Credit.
The Biz2Credit Small Business Lending Index found that big banks – those with $10 billion or more in assets – approved just 15.4% of submitted small business loan applications in March, down from their previous post-recession peak of 28.3% in February.
“This is a stunning fall that was not entirely unexpected,” said Biz2Credit CEO Rohit Arora. “Until just a few weeks ago, the economy was very strong, and big banks were lending at unprecedented frequency. Now, obviously, things have changed.”
Small banks made a similar decrease in approvals, falling to 38.9% from 50.3% the month before. Institutional lenders approved 41.2% of all small business loan requests, down from 66.5% in February.
Credit unions small business loan approvals fell to 23.2% in March, from 39.6%. “Credit unions had challenges in the business lending marketplace before the coronavirus came along,” said Arora. “With the speed that is required to pump some life into businesses right now, credit unions won’t be in the forefront of lenders. The credit unions that have improved their digital capabilities or partnered with FinTech firms are well ahead of competitors – especially now.”
Alternative lenders posted the biggest decline in approvals, dropping to 30.4% from 55.9% a month ago.
“Alternative lenders offer quick cash, so they will play a role in providing money to struggling companies,” Arora said. “But those who can wait for government-backed loans will do so, because the interest rate under the PPP lending program is so low at 1%.”
Millions of small businesses have turned instead to the government PPP program, part of the CARES Act, but there have been plenty of bumps in the road. Many small businesses were passed over by lenders for bigger companies for the loans and even many of those who have been approved have not yet received the money.
“Government agencies aren’t accustomed to moving at breakneck speed,” Arora said. “The problem is that up to 75% of small businesses could go under if they don’t receive an injection of cash within the next 60 days.”
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.