Business Loan Approvals at Big Banks Continue to Drop, While Other Lenders Increased in July: Biz2Credit Small Business Lending Index™
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Total nonfarm payroll employment rose by 187,000 in July, and the unemployment rate changed little at 3.5%, according to the Jobs Report released by the U.S. Bureau of Labor Statistics on Friday, August 4, 2023. Job gains occurred in health care, social assistance, financial activities, and wholesale trade. 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 July 2023 Index, click here.
“There are several reasons for the recent decline in small business lending at big banks,” said Rohit Arora, CEO of Biz2Credit, and one of the nation’s leading experts in small business finance. “Interest rates are up. Because big banks often made commercial real estate loans to small businesses, these deals have dried up with continuous interest rate increases from the Federal Reserve.”
“Additionally, regulators are looking to raise overall capital requirements at some of the largest banks by 2026. The banks are preparing for this now since many SMB loans carry 5-to-7-year terms,” Arora explained.
“Smaller banks do more government-backed SBA loans and have a heritage of working making business loans in their communities. Increasingly, these lenders are upgrading their technology to digitize the small business funding process, meaning they can serve more clients,” said Arora, a fintech pioneer who has led numerous technology partnerships with U.S. banks at Biz2Credit and Biz2X.
“Alternative lenders are seeing more capital moved in their direction as investors, such as insurance companies, look for opportunities for higher yields against the backdrop of a new rate environment,” Arora said. “Thus, these alternative providers have capital available to fund small business requests for financing.”
Similar to the situation with banks, credit unions are facing challenges in soliciting deposits, Arora said.
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.