Small business loan approval rates fell in March 2020


All categories of small business lenders plunge as coronavirus wreaks havoc on economy

Until the coronavirus pandemic hit the United States, small businesses thrived and created jobs, unemployment was at its 50-year low, consumer confidence was high, and the US economy in general. was as strong as ever.

Businesses that needed money for working capital or for expansion plans were usually able to get it. For example, the percentage of approval for small business loan applications at big banks (over $ 10 billion in assets) peaked at 28.3% after the recession in February 2020. A month later, approvals fell to only 15.4% large banks, a drop of nearly 50%, according to the latest Biz2Credit Index of Small Business Loans.

It’s an astonishing fall that was not entirely unexpected. In addition, the approval rate at small banks fell dramatically from 50.3% in February to 38.9% in March. What is devastating about the drop in lending from regional and community banks is that these small banks have long been a good source of business finance. Although they no longer approve more than they refuse, business owners contact them because they are likely to provide financing through SBA loans.

As the coronavirus-related economic crisis continues, small banks will lead the charge to help businesses get back on their feet. We’ve seen this since community banks performed like this on day one of the CARES Act Paycheck Protection Program (PPP) initiative.

During the initial phase of PPP lending, we saw some of the big banks, such as Bank of America, make a lot of loans. What has not been well publicized is the fact that a significant percentage of these loans were made to companies with which the banks already had financial relations.

When you think about it, it makes sense. A large bank will naturally find me more willing to lend to a company which owes it a mortgage on the building it occupies and the credit cards the bank has issued to it. If a corporate client goes out of business, the banks would get stuck in foreclosure of the property and lose the credit card debt repayment.

Since the government supports these loans, there is little risk for the big banks, which already had a lot of incentives to lend to their own customers. Unfortunately, this has left a lot of mom-and-pop businesses scrambling for funding.

The approval percentage rate for credit unions from what was already a record low of 39.6% in February to 23.2% in March. Credit unions struggled in the business lending market before the coronavirus arrived. With the speed needed to breathe life into businesses right now, unions are unlikely to be at the forefront of lenders. However, credit unions that have improved their digital capabilities or partnered with FinTech companies are way ahead of their competition, especially now.

With business closings and layoffs due to the coronavirus shaking the economy, many sectors of the economy have been rocked, including restaurants, hotels, airlines and other travel-related services. A remarkable 6.6 million Americans filed for unemployment in the week that ended March 28, according to the Bureau of Labor Statistics on Thursday, April 2. In addition, according to the employment report released on Friday, April 3, 2020, significant declines also occurred in health care and social assistance, professional and business services, retail trade and construction.

The implementation of the PPP CARES Act adopted by Congress and signed by President Trump was initially difficult. On the first day of the program, some of the biggest banks, such as Wells Fargo, were not ready to start offering P3 loans. Plus, although thousands of applications have been filed and approved, the money is still not in the hands of business owners who are in desperate need of funding.

Government agencies are not used to moving at breakneck speeds. The big problem is that up to 75% of small businesses could go bankrupt if they don’t get a cash injection within the next 60 days. Even willing lenders, such as community banks that process SBA loans, find it difficult to get money for struggling businesses.

On Wednesday evening, the SBA released an application form for non-bank lenders (FinTechs) to participate in the Paycheck Protection Program. It comes after small business owners across the country became frustrated because they were unable to submit emergency loan applications through their banks. Allowing FinTech lenders to get involved will help speed up the process and the number of options available to businesses seeking PPP financing.

The amount of information available can be overwhelming. Fortunately, websites, such as CARESActSmallBusiness.info, have sprung up to offer information on financing businesses in need of working capital during the coronavirus pandemic.

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