Small business loan approval rates at big banks slipped again in April, falling from 13.8% in March to 13.5% in April, according to Biz2Credit’s Small Business Lending Index.

Approval rates at small banks also dropped from 19.1% in March to 18.7% in April, while credit unions approved 19.8% of small business loan applications in April, down from 20.2% in March. Meanwhile, approval rates at alternative lenders climbed to 28.7% in April, up from 28.4% in March, and 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,” Rohit Arora, CEO of Biz2Credit, said. “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. 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%. 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 May 5. Meanwhile, the low unemployment rate is keeping pressure on wage inflation, which grew 4.4% year over year in April. Employment continued to trend upward in several industries, including professional and business services, healthcare, leisure and hospitality, and social assistance.

“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 greater than 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.