July saw an encouraging rebound in small business loan approval rates for banks and non-bank lenders. This is evident from the recently published Biz2Credit Small Business Lending Index.
The approval rates show an increase in the approval percentage for small loan applications from large banks by 0.3%. This approval rating increase does not include Paycheck Protection Program (PPP) loans. It also only applies to major banks with assets of $ 10 billion or more.
Biz2Credit Credit Index July 2020
The small business loan approval rate was 13.5% in June and rose to 13.8% last month. Small bank approval rates rose 0.2% to 18.6%, with both large and small bank approvals still massively below the 50.3% seen in February.
Encouraging approval rating trend for small businesses
While the rise in the loan approval rate seems gradual, the upside for small businesses in the US is still encouraging. This is clearly little good news for small businesses that may need such loans to help them stay afloat. Customer numbers and sales are still declining for many companies, but the upward trend will hopefully continue.
Other improvements in the labor market show that economic activity is slowly recovering. The health sector has seen a significant surge in employment. There were also notable increases in the leisure and hospitality, retail, business and professional services sectors. Many of these jobs were created by small businesses, which are clearly vital to the recovery of the economy.
Institutional Lenders ‘Steady Growth’
The monthly research of Biz2Credit is overseen by its CEO and leading small business lending expert, Rohit Arora, who commented: “The economy was clearly booming in July, particularly in the Northeast. The big banks have played a key role in PPP lending and are making other loans to their clients as some of them have used up their PPP funds.
“It will be interesting to follow major bank lending as the coronavirus spreads in the south and west of the country.”
Arora also said regional and community banks are now providing other types of credit to new customers. Previously, they had made many PPP loans only available to small businesses.
“The smaller banks are now in a good position to resume SBA 7 (a) loans and other funding requests,” added Arora. “Institutional lenders, like the other types of lenders, are steadily declining after disastrous results in March and April. They continue to play a strong role in lending to small businesses. “
Alternative lenders and credit unions continue to struggle
Unfortunately, the increase in the loan approval rate at large and small banks contrasts with the rates at alternative lenders. They fell 0.3% between June and July. The loan approval rate for alternative lenders is now 23.1%.
Credit union approvals also fell slightly in July, approving 21.2% of loan applications. That’s a 0.15% drop to match the May approval rating of 21.2%.