July Small Business Loan Approval Rates Drop at Big Banks, Increase with Other Lenders

Small business loan approval rates at big banks (more than $10 billion in assets) dropped from 13.4% in June to 13.3% in July, according to Biz2Credit’s Small Business Lending Index.

Big bank lending plummeted early in the COVID-19 pandemic from a 28.3% approval rate in February 2020. The numbers slowly rebounded for over a year until July 2022. Since then, however, small business loan approvals have fallen steadily.

“There are several reasons for the recent decline in small business lending at big banks,” Rohit Arora, CEO of Biz2Credit, said. “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 five-to-seven-year terms.”

As big bank lending decreased, small business loan approval percentages at small banks increased from 18.8% in June to 18.9% in July.

“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,” Arora said.

Non-bank lenders remained a good source of capital in July. The approval rates of institutional investors increased from 27.1% in June to 27.3% last month, while alternative lenders improved from 29.1% in June to 29.3% in July. The figures for these lenders have increased for nine consecutive months as borrowers have turned to them for money while bank lending remains tight.

“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.”

Approval rates at credit unions again stalled at 19.9% in July. Similar to the situation with banks, credit unions are facing challenges in soliciting deposits, Arora said.

To determine its Small Business Lending Index, Biz2Credit analyzed loan requests from companies in operation for more than two years with credit scores greater than 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.