Small Business Loan Approval Rates at Big Banks Plummet More Than 50% Y/Y in January

Small business loan approval percentages at big banks ($10 billion or more in assets) increased slightly to 13.2% in January 2021 from December 2020’s figure of 13.1%, according to the latest Biz2Credit Small Business Lending Index. In comparison, in January 2020, big banks approved a record high of 28.3% of the funding requests they received.

“What a difference a year makes,” Rohit Arora, CEO of Biz2Credit, said. “Last January, it was relatively easy to secure small business financing from banks. This year, big banks are approving less than half of the non-Paycheck Protection Program (PPP) requests they get.”
Biz2Credit has found that second PPP loan requests account for approximately two-thirds of loan pre-applications for the government-approved funding.

The Bureau of Labor Statistics reported nonfarm payroll employment changed little (49,000) in January 2021, according to the Jobs Report released on Feb. 5. The labor market continued to reflect the impact of the COVID-19 pandemic and efforts to contain it. In January, notable job gains in professional and business services and in both public and private education were offset by job losses in leisure and hospitality, retail trade, healthcare, and transportation and warehousing.

Small banks approved 18.3% of business financing applications in January, up one notch from 18.2% the month prior. In sharp contrast, small banks granted more than half (50.4%) of their small business loan applications in January of 2020.

Credit unions slipped one-tenth of a percent to a 20.5% approval rate in January from 20.6% in December. A year ago, credit unions approved 39.6% of the applications they received.

Two categories of non-bank lenders rose slightly last month. Institutional lenders approved 23% of applications for funding in January, up two-tenths of a percent from 22.8% in December. Meanwhile, loan approval rates among alternative lenders rose from 23.5% in December to 23.7% in January. These figures highlight the challenges for small companies in search of capital. In January 2020, institutional lenders approved nearly two-thirds (66.4%) of their funding requests, and alternative lenders granted 56.1% of their applications.

“Business owners who saw their revenues drop by 25% in 2020 are looking to the government for help via PPP loans,” Arora said. “However, companies that did not experience 25% decline in revenues are ineligible for the PPP. It is very difficult for them to secure financing right now.”

For the Biz2Credit Small Business Lending Index, Biz2Credit analyzed loan requests from companies in business for more than two years with credit scores above 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.

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