Small business funding platform Biz2Credit announced on Tuesday its latest Small Business Lending Index reveals that the approval percentage for small business loan applications at big banks ($10 billion+ in assets) plummeted below double digits to just 8.9%, down from 15.4% in March and an all-time high 28.3% in February 2020.
According to the Index, the April 2020 figure was the lowest approval rate for big banks since the Index began in January 2011. The rates do not reflect the Paycheck Protection Program (PPP) loan approval rates; the approvals for PPP loans are made by the government, rather than by the banks themselves. Speaking about the decline, Biz2Credit CEO, Rohit Arora, stated that the decline is expected but still remained starling.
“Until February, the economy was as strong as we had ever seen, and big banks were lending at unprecedented frequency. Now, unemployment is at Depression era-levels. The rapidity of this change is still hard to comprehend even two months later.”
The Index also revealed that the approval rate at small banks has also plummeted, falling to 11.8% in April, down from 38.9% in March and 50.3% in February. Institutional lenders’ approval percentages plummeted to 18.1% from 41.2% in March and a record high of 66.5% in February. The fall of loan approval rates among alternative lenders dropped to just 15.2%, which fell from 30.4% in March and 55.9% in February. Arora further explained:
“Because PPP loans come at just a 1% interest rate and, in many cases, will be forgivable, companies looked for other options besides funding from alternative lenders. However, because of the speed at which they can make decisions and put money into the bank accounts of small businesses, they are likely to be some of the first to return to high levels of funding as the crisis eases. They may not again reach pre-coronavirus levels, but there will still be a place for them in the small business lending marketplace.”
The Index then added that the approval percentage rate for credit unions hit another record low for the third straight month. Credit unions approved 18.1% of funding requests in April, following March’s approval percentage of 23.2%, and 39.6% in February.