Small Business Loan Approval Rates Rise at Small Banks, Dip at Larger Institutions in July

According to Biz2Credit’s latest Small Business Lending Index, small business loan approval percentages at small banks rose from 21.1% in June to 21.2% in July, while approvals at big banks (more than $10 billion in assets) dipped from 15.4% in June to 15.3% in July.

Among non-bank lenders, approval percentages improved slightly, while credit union lending approvals dipped:

• Institutional lenders approved 25.8% of loan requests in July, up from 25.6% in June. Approvals in this lending category have climbed consistently in 2022.

• Alternative lenders’ approval rates rose from 27.1% in June to 27.2% in July.

• Credit unions’ approval rates dropped from 20.5% in June to 20.4% in July.

“Approvals at big banks slipped just a bit after months of steady increases. This is likely due to concerns about a possible recession after the Federal Reserve rose interest rates by 75 basis points in an effort to control inflation,” Rohit Aror, CEO of Biz2Credit, said. “Small banks, which process a lot of SBA loans, remain a good source of capital. For companies that need money more quickly, nonbank lenders remain a good option. Small business lending at credit unions continues to flounder. Fortunately, their approval percentages are roughly half of what they were just before the pandemic and have shown little growth this year.”

Total nonfarm payroll employment rose by 528,000 in July, and the unemployment rate edged down to 3.5%, according to the Jobs Report released by the U.S. Bureau of Labor Statistics on Aug. 5,. Job growth was widespread, led by gains in leisure and hospitality, professional and business services and healthcare. Both total nonfarm employment and the unemployment rate have returned to its February 2020 pre-pandemic levels.

“Small business owners continue to face challenges in finding workers. The demand for labor is driving up wages, which impacts the bottom line for many small companies. Labor costs are usually a company’s largest expense,” Arora said. “Meanwhile, inflation remains high and puts a financial crunch on small business owners.”