The Biz2Credit Small Business Lending Index for August reveals banks and non-bank lenders approved more loans in August. This includes big and small banks as well as institutional and alternative lenders. Only credit unions didn’t see any change, staying the same for the past two months with a 20.5% loan approval rate.
Biz2Credit Small Business Lending Index – August 2021
The percentage of loan approvals by non-bank lenders was up considerably in August. Institutional lenders approved 24.3% of loans to small businesses in August. This was up 0.4% from July and an impressive 2.2% from the same time last year. Alternative lenders did even better by approving 25.2% of loans, which is up half a percentage point from July’s 24.7%.
With less stringent requirements than traditional banks, non-bank and alternative lenders offer great options for small businesses owners with less than perfect credit scores. Biz2Credit CEO, Rohit Arora, echoes this very sentiment.
Arora says, “Non-bank lenders continue to be a good source of capital for small business owners. They typically focus less on FICO scores and more on the financial health of the borrowers who are applying for funding. This is especially true for institutional lenders and alternative lenders.”
According to the August index, big banks with assets of $10+ billion increased their approval rates for small businesses from 13.8% in July to 13.9% in August. The increase year over year is up by three-tenth of a percentage point from 2020.
On the other hand, small banks did slightly better, going up from 19.1% in July to 19.3% in August. On a yearly basis, the approval by small banks was up eight-tenths of a percent from last year.
The only segment that didn’t make any gains was Credit Unions by approving 20.5% in August as well as June and July. The rate is also down from August of 2020 when the approval rate was 21.1%.
PPP Loans and an Expanded EIDL Cap
More than ever, small businesses have been looking for alternative sources of funding. This is primarily being driven by the COVID-19 pandemic. And while the government has helped small businesses with billions of dollars through the PPP loan program, the ever-evolving strains of COVID-19 keep moving the goal post of ending the pandemic further.
The Small Business Administration wants small businesses that have been approved for the loan to ask for PPP loan forgiveness. This will not only help owners by not having to pay the loan, but banks will also have more funds to make loans available. Furthermore, the SBA also says there is still COVID relief money for small businesses still available.
SBA also recently announced that it’s expanding the cap on Economic Injury Disaster Loans (EIDL) for small businesses continuing to be affected by the COVID pandemic from $500,000 to $2 million.