As economy recovers, loan approval rates rise for small businesses
As economy recovers, loan approval rates rise for small businesses

Small business loan approval percentages in large banks (over $10 billion in assets) rose slightly from 13.5% in May to 13.6% and small bank approvals rose to 18.9% from 18.7% in May in June 2021, according to the latest Biz2Credit Small Business Loan Index.

The pandemic has opened up opportunities for many banks. Many small banks that had not fully automated their small business loan application process are now moving in this direction. Banks that have participated in the government’s Paycheck Protection Program (PPP) loans to help small businesses survive the pandemic have often won over those small businesses as customers, and now that the PPP is over, they may again be able to help them with traditional term loans and SBA loans.

Many lenders have earned millions in processing fees for processing PPP loans over the past year. Smaller banks, especially community and regional institutions, are partnering with FinTechs to digitize their small business loan application process. The pandemic has actually opened up opportunities for banks.

In the first cycle of the PPP program, the big banks focused on their own customers and larger borrowers, and small businesses – often owned by women and minorities – were unable to access financing from large institutions. During the second round, however, community banks and non-bank lenders, such as FinTech companies and credit unions, were able to help.

Now, these non-bank lenders have seen a slow but steady increase in their loan approvals. For example, credit unions went from a 20.4% approval rate in May to 20.5% in June 2021. Institutional lenders approved 23.8% of funding requests in June, up two tenths of a percent from 23.6% in May. Meanwhile, alternative lenders approved 24.5% of funding requests in June 2021, compared to 24.3% the previous month.

Small business owners need capital both to bounce back and to grow. They have broadened their thinking beyond the big banks and realize that they are able to obtain funding from many different sources. Although capital is not flowing as freely as before the COVID-19 pandemic, approval percentages are still higher than they were during the darkest days of the credit crunch that followed the Great Recession.

The arrival of summer and the slowing of the spread of COVID-19 are good signs for the economy as a whole. We are already seeing the return of pent-up travel demand. People are increasingly willing to return to their favorite restaurants and dine indoors.

Other signs indicate that the recovery is on track. According to a report by The Wall Street Journal, new businesses are growing at the fastest rate ever. The rate at which workers are leaving their jobs, a sign of confidence in the labor market, is the highest since 2000. Meanwhile, the unemployment rate has fallen from a peak of 14.8% in April 2020 to 5, 8% in June 2021. The Dow Jones Industrial Average is well above its pre-pandemic peak (February 2020). On Monday, July 12, the Dow rose 126.02 points (0.4%) to just under 35,000 (34,996.18, to be exact), to hit a new all-time high.

Related: Government can incorporate lessons learned from PPP into future programs

While small business owners still face challenges including rising fuel and wage costs, as well as a tight labor market, the signs are positive for a full recovery. Access to capital is key to the rebound, and entrepreneurs seem ready to invest in their businesses and start operating profitably again.

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