Small Business Bank Loan Approvals Continued to Plummet in April: Biz2Credit Study
Biz2Credit Small Business Lending Index finds funding rates at banks continue to decline amid current banking turmoil; borrowers turn to non-bank lenders.
NEW YORK, May 09, 2023 (GLOBE NEWSWIRE) — Small business loan approval percentages at big banks slipped again, falling from 13.8% in March to 13.5% in April, according to the latest Biz2Credit Small Business Lending Index™ released today. Further, the approval rates of business loan applications at small banks again dropped from March’s disappointing figure of 19.1% to 18.7% in April.
Credit unions’ small business loan approval percentages also dropped last month, falling to 19.8% in April, from 20.2% in March.
As small business lending at banks and credit unions continues to decline, approvals at non-traditional lenders rose in each of the categories monitored by the Biz2Credit Index.
- Alternative lenders climbed to 28.7% in April, up from 28.4% in March.
- Institutional investors granted 26.7% of funding requests in April, up from 26.5% in March.
“The instability in the banking system goes well beyond the recent collapses of Silicon Valley Bank (SVB) and Signature Bank. Last week, First Republic Bank, a bank that was run much more responsibly than SVB, was taken over by the FDIC, and its assets were sold to JPMorgan Chase,” said Rohit Arora, CEO of Biz2Credit, one of the nation’s leading experts in small business finance and fintech. “Other midsize and regional banks may also be in trouble as business accounts continue to withdraw their money and shift it to big banks or money market accounts.”
“While we do not have a full bank run yet, these developments hurt the banks’ ability to lend to small businesses,” Arora added. “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.”
“Complicating the financial woes of small firms is the ever-rising cost of capital as the Fed raised its base lending rate another 25 bps up to a range of to 5% to 5.25%,” Arora said. “While the central bank is signaling that this may be the last increase this year, right now, interest rates are at their highest levels since 2007.”
Total nonfarm payroll employment rose by 253,000 in April, and the unemployment rate dipped slightly to 3.4%, according to the Jobs Report released by the Bureau of Labor Statistics on Friday, May 5, 2023. Meanwhile, the low unemployment rate keeps pressure on wage inflation, which grew 4.4% in April from a year earlier. Employment continued to trend upward in several industries, including professional and business services, health care, leisure and hospitality, and social assistance. Many of these jobs are created by small businesses.
“While it is good news that people are working, the tight labor market hurts the bottom line for small businesses,” Arora said. “Companies that need working capital to pay their bills are paying a higher cost of capital for it. This combination puts stress even on small businesses that are thriving. It’s a Catch-22 situation right now.”
To determine its Small Business Lending Index, Biz2Credit analyzed loan requests from companies in operation 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 funding on Biz2Credit’s platform. To view the April 2023 Index, click here.
Founded in 2007, Biz2Credit has arranged more than $7 billion in small business financing. The company is expanding its industry-leading 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.
Contact: John Mooney, (908) 720-6057, [email protected]
