Government Shutdown Hurts SBA Lending at Banks in December, According to Biz2Credit Small Business Lending IndexsuperscriptstartTMsuperscruptend
Business loan approval percentages continue to rise at big banks and institutional lenders, while alternative lenders and credit unions again dip slightly
With the U.S. Small Business Administration (SBA) closed for the past two weeks because of the partial government shutdown, SBA loan approvals dropped in December 2018 at banks and other institutions. Despite this setback, overall ahrefstartsmall business loan approvalahrefend rates for big banks reached another record high (27%) in December 2018, according to the Biz2Credit Small Business Lending IndexsuperscriptstartTMsuperscruptend released today.
Big Banks
The December approval percentage for big banks (assets of $10 billion+) rose one-tenth of a percent from October's figure of 26.9% to 27%, according to Biz2Credit's monthly report, which examines more than 1,000 small business credit applications made via its online lending platform.
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Eyes are also on Washington because Federal Reserve chairman Jerome Powell hinted that the central bank may reconsider the Fed's recent policy of raising interest rates if economic growth slows down. However, the recent holiday shopping season is considered one of the strongest in six years, and the Department of Labor reported that the economy added 312,000 jobs in December, a number far above consensus expectations. The Fed signaled in December that two more rate hikes could come in 2019, on top of five consecutive quarters with interest rate increases.
Rohit Arora, Biz2Credit CEO
"Things were moving quite well before the shutdown, and still are for big banks".
"With the SBA closed, there is now a backlog of companies awaiting funding primarily from small banks. At this point, it will take months for regional banks to recover from this jam and restore the flow capital to small businesses."
Rohit Arora, Biz2Credit CEO
Small Banks
Business loan approval rates dropped three-tenths of a percent at regional and community banks in December 2018. Small bank approvals slipped below the half-way mark to 49.9% following the month of November when 50.2% were approved.
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Institutional lenders
Institutional lenders inched slightly up to 64.8% in December, up one-tenth of a percent from 64.7% in November, a good sign for small business borrowers.
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Alternative lenders
Loan approval rates among alternative lenders dropped from 56.7% in November to 56.6% in December. While some of these lenders were affected by the SBA shutdown, experts advise that the trend could reverse itself if the shutdown continues.
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"If SBA lending continues to stall, alternative lenders could rebound. They will offer money when other lenders do not, but the funding comes at higher rates and shorter terms," Arora explained. "These lenders have carved out a niche by funding companies that do not qualify for traditional bank loans. The higher cost of capital is a reflection of the increased risk involved in lending to those firms."
Rohit Arora, Biz2Credit CEO
Credit unions
Credit unions approved 40.1% of loan applications in December, tying an all-time low figure, down one-tenth of a percentage from November, according to the Biz2Credit Index.
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"No matter how you look at it, 2018 was still a great year for small business lending. As long as the government shutdown does not continue much longer, we are still in a good place," Arora said. "If SBA lending stalls much longer, it will negatively impact small companies looking for funding, slowing down the strong growth we've seen in this part of the economy."
Rohit Arora, Biz2Credit CEO
View Past Months
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| February 2021 |
Biz2Credit Small Business Lending Index™ Finds Loan Approval Rates in February 2021 Changed Little from January, But Dropped Dramatically from February 2020 |
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As Small Business Businesses Apply for PPP Funding, Approval Percentages for Traditional Loans Plummet |
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| January 2021 |
Biz2Credit Small Business Lending Index™ Reports Loan Approval Rates at Banks Increased Slightly in January 2021, But Are Down More Than 50% from One Year Ago |
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| December 2020 |
Biz2Credit Small Business Lending Index™ Reports Loan Approval Rates at Banks Declined in December 2020, Are Down More Than 50 Percent from One Year Ago |
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Approval percentages for all categories of lenders dropped more than 50% from December 2019 |
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| November 2020 |
Biz2Credit Small Business Lending Index™ Reports Loan Approval Rates at Banks Declined in November 2020, Are Down More Than 50 Percent from One Year Ago |
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Approval percentages are down 50% or more for all categories of small business lenders as the pandemic surges |
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About Biz2Credit Small Business Lending IndexTM
The Biz2Credit Small Business Lending IndexTM 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 IndexTM 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.