- Small business loan approval rates improve slightly in May, but remain low
- Approval rate is highest among alternative lenders and lowest among large banks
- June data likely to be significant, as it will reflect changes in lending patterns following the expiration of the Paycheck Protection Program
Summary by Dirk Langeveld
Small business lending inched up in May, according to the latest Biz2Credit Small Business Lending Index. However, approval rates remained considerably dampened, with the typical lender approving one in five applications or fewer.
The report suggests that June’s data will be significant, as it will reflect how lender approvals and lending preferences shift following the expiration of the Paycheck Protection Program. Rohit Arora, CEO of Biz2Credit, says small businesses may turn more to funding sources such as credit unions, institutional lenders, or alternative lenders, while traditional banks may need to focus more on PPP forgiveness processes and not ramp up small business lending right away.
The report analyzes loan approval rates among small businesses that have been in existence for at least two years and have a credit score of at least 680.
- The small business loan approval rate among large banks (with $10 million or more in assets) was 13.5 percent in May, up 0.1 points from April and 2 points from May 2020
- Small banks’ approval rate increased from 18.2 percent to 18.7 percent, up 1.8 points from the previous year
- The approval rate at institutional lenders was 23.6 percent, up 0.1 points from April and 2.2 points from May 2020
- Alternative lenders had the highest approval rate at 24.3 percent, up from 24 percent in April and 20.5 percent in May 2020
- Credit unions’ approval rate inched up 0.1 points to 20.4 percent, though this was 0.8 points lower than the previous year
