Small business loan approval percentages in large banks (over $ 10 billion in assets) edged up from 13.5% in May to 13.6% and approvals from small banks rose from 18.7% in May to 18.9% , in June 2021, according to the last 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 these small businesses as customers, and now that the PPP is over, they can again help them by providing them with Traditional Term Loans and SBA Loans.
Many lenders have earned millions in processing fees for processing PPP loans over the past year. Small 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, large banks focused on their own customers and large borrowers, and small businesses – often women-owned or minority-owned businesses – were unable to access financing from large institutions. In the second round, however, community banks and non-bank lenders, such as FinTech companies and credit unions, were able to help.
Today, 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, up from 24.3% the month before.
Small business owners need capital to both rebound and grow. They have broadened their thinking beyond the big banks and realize that they are able to obtain funding from many different sources. While capital does not flow as freely as it did before the COVID-19 pandemic, approval percentages are still higher than they were during the darker days of the credit crunch following the Great Recession.
The onset of summer and the slowdown in the spread of COVID-19 are good signs for the economy as a whole. We are already seeing a return in pent-up travel demand. More and more people are willing to go back to their favorite restaurants and dine inside.
There are other signs that the recovery is on track. According to a report by The Wall Street Journal, new businesses are emerging at the fastest pace on record. The rate at which workers quit their jobs – a sign of confidence in the labor market – is the highest since 2000. Meanwhile, the unemployment rate has fallen from a high of 14.8% in April 2020 to 5 , 8% in June 2021. The Dow Jones Jones Industrial Average is well above its pre-pandemic peak (February 2020). On Monday July 12, the Dow Jones rose 126.02 points (0.4%) to just under 35,000 (34,996.18, to be exact), reaching a new high.
Related: Government can incorporate lessons learned from PPP into future programs
While small business owners still face challenges, including rising fuel costs and wages, as well as a tight labor market, signs are positive for a full recovery. Access to capital is the key to the rebound, and entrepreneurs appear ready to invest in their businesses and start operating profitably again.