Credit Unions Struggle With Small-Business Lending
New data shows that credit unions continue on a downward trend for small business loan approvals.
The rate at which big banks approved small business loan applications rose in July, but credit unions continue to struggle, according to the Biz2Credit Small Business Lending Index released this week.
The increase among big banks was slight: They approved 13.8% of small business loan applications in July, up from 13.5% in June. The rate is far below the 28.3% in approvals in February, before the pandemic hit, but builds on a “little uptick” that began in May, according to Biz2Credit’s data.
Credit unions, on the other hand, approved 21.2% of loans, down from 21.35% during the same period, but about on par with the rate in May. Before the pandemic, in February, credit unions were approving 39.6% of loans.
Biz2Credit CEO Rohit Arora said many credit unions are struggling with remote lending, which is necessary during the pandemic. They also suffer from the “double whammy” of lending to neighborhood businesses that have lost revenues during the pandemic.
“Even if you’re coming to apply for loans, as a credit union, you would not approve them because you would have trouble: Their business has suffered more than some of the other businesses,” he said.
The increases in lending come as unemployment has eased. On Aug. 7, the U.S. Bureau of Labor Statistics found that non-farm payroll employment rose by 1.8 million and the unemployment rate fell to 10.2% last month. Many of the jobs coming back are in leisure and hospitality, government, retail, professional services and health care – industries all potentially created by small businesses.
Biz2Credit, which provides an online marketplace for lenders, based the results of loan rates on data from 1,000 small business owners who applied for funding on its platform.
The approval rates do not reflect loans made through the Paycheck Protection Program, part of the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act, which the government funds. But those loans may have contributed to the uptick, according to Arora.
The loan approval increases also showed up at small banks, which approved 18.6% of small business loans in July, up from 18.4% in June but far below the 50.3% in February. And institutional lenders, such as pension funds and insurance firms, approved 21.9% of loans last month, compared to 21.6% in June.
Alternative lenders did not see similar gains. Loan approvals decreased from 23.5% to 23.1% from June to July.