The approval percentage of small business loan applications from large banks (over $ 10 billion in assets) rose three-tenths of a percent, from 13.5 percent in June to 13.8 percent in July, according to the last Biz2Credit ™ Small Business Loan Index.
The numbers do not reflect the approval of Paycheck Protection Program (PPP) loans, which are made by the government rather than the banks. However, the July figure shows an upward trend, even though approval rates are still well below the records reached earlier in 2020 before the coronavirus pandemic hit.
The economy showed some recovery, particularly in the northeast in July. Big banks have played a key role in PPP lending and are making more loans to their customers as some of them have used up their PPP funds. It will be interesting to follow the loans at the big banks as COVID-19 spreads in the southern and western regions of the country.
The approval rate for small banks was 18.6% in July, up two-tenths of a percent from 18.4% in June. This figure contrasts sharply with that of February 2020, when small business loan approvals hit 50.3%.
Regional and community banks have made a lot of PPP loans to small businesses and are now providing other types of loans to these new clients. Smaller banks are now in a good position to take over SBA 7 (a) loans and other funding requests.
There are other positive signs in the economy as well. The August 7, U.S. Bureau of Labor Statistics employment report found that non-farm payroll employment increased by 1.8 million in July, while the unemployment rate fell to 10.2 percent . Improvements in the labor market reflect the continued upturn in economic activity that has been curtailed due to the COVID-19 pandemic and efforts to contain it. Notable job gains in July were recorded in the leisure and hospitality, public administration, retail, business and professional services and health care sectors. Many of these jobs are created by small businesses.
Overall, the PPP loan program has provided nearly 5 million small businesses with more than $ 521 billion in potentially repayable loans, directly ensuring that 50 million American workers keep their jobs, according to an SBA report. The average loan amount was $ 106,772, and 5.460 lenders have participated in the program so far. Congress passed a law which was later signed by President Trump.
Institutional lender approval percentages increased to 21.9% in July, from 21.6% in June. Institutional lenders, like banks, have rebounded steadily from the disastrous spring results. They continue to play an important role in small business loans.
However, not all categories of lenders showed improvement. Loan approval rates among alternative lenders fell three-tenths of a percent to 23.1%, from 23.4% in June. Alternative lenders are in trouble right now, some of them are not lending much. The numbers show it.
Additionally, credit unions approved 21.2% of loan applications in July, down slightly from 21.35% in June, a slight increase from 21.2% in May 2020. Credit unions are struggling and trying to take back their loans. Many of them are still lagging behind when it comes to technology and are struggling to keep up with other categories of lenders.
Biz2Credit analyzed loan applications from businesses that have been in business for more than two years with credit scores above 680. The results are based on primary data submitted by over 1,000 small business owners who have applied for financing on the Biz2Credit platform.