With the end of the PPP, small businesses must seek other sources of financing
With the end of the PPP, small businesses must seek other sources of financing

Small business loan approval percentages in large banks (over $10 billion in assets) rose slightly from 13.4% in April to 13.5% in May 2021, according to the latest Biz2Credit Small Business Loan Index. Small bank approvals jumped from 18.2% in April to 18.7% in May.

Small bank loan approvals rose 0.3% as banks begin to assess the favorable economic conditions that are beginning to emerge as lockdowns ease and more people receive a Covid-19 vaccine. 19. Pent-up consumer demand is an appealing narrative that small business owners can use as part of their funding request rationale. Banks, especially smaller community and regional institutions, are noticing this trend as they begin to open their lending operations to the post-pandemic reality.

Next month’s loan figures will be more significant now than the feds Paycheck Protection Program (PPP) completed its second round.

Businesses still reeling from the economic impact of the pandemic will need to seek other sources of funding. Look for business loans, especially loans from online or digital vendors, to see an increase in activity now that the PPP is closed.

Credit unions went from an approval rate of 20.3% in April to 20.4% in May 2021. Other non-bank lenders increased slightly. Institutional lenders approved 23.6% of funding requests in May, down from 23.5% in April. Meanwhile, alternative lenders approved 24.3% of funding requests in May 2021, compared to 24.0% the previous month.

Alternative lenders saw a significant increase in approval rates in May while processing an ever-increasing number of loan applications, thanks to the shift to online financing in the small business space. With the conclusion of the PPP, the banks are focused on forgiveness and may not be ready to increase lending to small businesses that are not backed by the government.

Many borrowers will need to turn to non-bank sources of financing, including alternative lenders, institutional lenders and credit unions. These lenders are all starting to meet demand, and many will see their approval ratings increase as customers who used to get loans from a bank now turn to other sources of funding.

What types of government support are small businesses currently eligible for?

Covid-19 Economic Disaster Loans provide economic relief to small businesses and non-profit organizations currently experiencing a temporary loss of revenue. The loans are intended to help businesses meet financial obligations and operating expenses that could have been met had the disaster not occurred. For loans approved from the week of April 6, 2021: 24 months of economic harm with a maximum loan amount of $500,000. Terms are 3.75% (fixed) for corporations and 2.75% (fixed) for nonprofits for 30 years, with no penalties or prepayment charges. Loans can be used for working capital and normal operating expenses. (For example: continued health care benefits, rent, utilities, fixed debt payments.) Collateral is required for loans over $25,000. The SBA uses a General Security Agreement (UCC) naming business assets as security, such as machinery and equipment, furniture and fixtures, etc.

The subsidy program for operators of closed sites was established in the Economic Relief for Small Businesses, Nonprofits and Hard-Hit Places Act and amended by the U.S. Bailout Act to provide more than $16.2 billion in assistance economy to target industries.

To be eligible, applicants must have experienced a reduction of 25% (or more) in their gross income between the corresponding quarters in 2019 and 2020 and must have been “fully operational” on February 29, 2020. The SVOG portal is now open for receive applications from venue operators, performing arts organizations, museums and cinemas, as well as businesses such as venue promoters, theater producers and others.

NIH Grants are available for small businesses developing and researching biomedical technologies related to Covid-19. There are several grants available.

Businesses that are not eligible for the special programs listed above will need to look to more traditional types of financing (loans, cash advances, and other forms of non-governmental support).

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