Small Business Bank Loan Approvals Continued to Plummet in April: Biz2Credit Study
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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 Friday, May 5, 2023. Meanwhile, the low unemployment rate keeps pressure on wage inflation, which grew 4.4% in April from a year earlier. Employment continued to trend upward in several industries, including professional and business services, health care, leisure and hospitality, and social assistance. Many of these jobs are created by small businesses.
To determine its Small Business Lending Index, Biz2Credit analyzed loan requests from companies in operation 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. To view the April 2023 Index, click here.
“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,” said Rohit Arora, CEO of Biz2Credit, one of the nation’s leading experts in small business finance and fintech. “Other midsize and regional banks may also be in trouble as business accounts continue to withdraw their money and 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,” Arora added. “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%,” Arora said. “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.”
“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.”
The Report
About Biz2Credit Small Business Lending Index™
The Biz2Credit Small Business Lending Index™ is an analysis of 1,000 monthly loan applications on the Biz2Credit website. The Index reports the loan approval rates of small business financing requests at Big Banks ($10 billion+ in assets), local and regional banks and non-bank lenders (credit unions, Community Development Financial Institutions (CDFI), micro lenders, and others).
Unlike other surveys, the results are based on primary data submitted by more than 1,000 entrepreneurs who applied for funding on Biz2Credit's online lending platform, which connects small business borrowers with sources of capital.
Results of the Biz2Credit Small Business Lending Index™ have been reported by The Wall Street Journal, Bloomberg BusinessWeek, Entrepreneur.com, Bloomberg Radio's "The Hays Advantage", SBA Radio, NY Daily News, Crain's NY Business, Michigan Banker, and other media.