Small Business Loan Approvals at Big Banks Drop to 13.8% in March
According to the latest Biz2Credit Small Business Lending Index, small business loan approval percentages at big banks slipped again, falling from 14.2% in February to 13.8% in March. This mark is the lowest figure for big banks since July 2021. Approval rates of business loan applications at small banks also dropped more than two percentage points from February’s figure of 21.3% to 19.1% in March.
As bank lending to small businesses declined, approvals at non-bank lenders rose in each of the categories monitored by the Biz2Credit Index, including:
Alternative lenders climbed to 28.4% in March, up from 27.9% in February.
Institutional investors granted 26.5% of funding requests, up from 26.3% in February.
Credit unions reversed a year-long decline in approval percentages by rising to 20.2% in March from 20.0% in February.
“The collapse of Silicon Valley Bank (SVB) shook the confidence of small business owners. Many of them rushed to take their deposits out of small and midsize banks,” Rohit Arora, CEO of Biz2Credit, said. “That development hurt the banks’ ability to lend. Thus, it has become even harder for companies to secure capital.”
Arora noted that there was a big difference in the approval rates at banks during the first 10 days before the SVB and Signature Bank collapses and the final days of March, when approvals plummeted as businesses pulled deposits from small and midsized banks.
“Even though the large majority of small businesses did not lose their deposits, their faith in the banking system became shaken,” Arora said. “Many SMBs moved their money out of smaller banks when they had amounts in excess of the $250,000 FDIC insurance threshold. They put their money into bigger banks.
“Although small business owners won’t get the level of service at big banks that they received at smaller banks, they will choose safety over service every time. While the worst fears of small business owners may not be warranted, their confidence in the banking system has not been fully restored, and it may not return for a while. This hurts lending, and it is why small businesses are now experiencing a credit crunch.”