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Small Business Loan Approval Rates Continue to Rise in Tandem With Labour Costs

Small business borrowers are seizing higher loan approval rates to grow and expand their businesses, keeping unemployment rates stable amid rising labour costs. 

This was the key finding of sector analysis performed by the small business lender Biz2Credit, which surveyed data submitted by 1,000 of the small business owners who applied for funding through its platform.

The lender analysed loan requests from companies in business for more than two years with credit scores above 680.

Positive approval rates 

In June 2022, big banks (with assets in excess of $10million) approved 15.4 per cent of all small business loans, a figure that rose 0.1 per cent from the month prior.

During the same month, small banks approved 21.1 per cent of loans, according to the platform’s small business lending index.

On this front, the rate of approval faired slightly better than that of incumbent counterparts, rising 0.2 per cent from May.

The platform’s data indicates that the number of loans being approved by banks has increased through every month this year.

Non-bank lenders

As the data suggests, non-bank lenders continue to lead the way in small business lending.

Institutional lenders, like loan associations for example, approved 25.6 per cent of loan requests in June, up one-tenth of a per cent from 25.5 per cent of loan requests in May.

Similarly, alternative lenders, which usually operate as private companies, approved 27.1 per cent of the small business loans that came their way in June, which, like small banks, was a figure that rose 0.2 per cent from the month prior.

However, as the data brings to light, not all non-bank lenders increased their lending rates last month, as in fact, the number of loans being approved by credit unions slipped from 20.6 per cent in May to 20.5 per cent in June.

Biz2Credit CEO Rohit Arora
Rohit Arora

Reflecting on its findings, the company’s CEO, Rohit Arora, comments that despite being nowhere near pre-pandemic approval percentages, these latest figures are “positive signs.”

“While the cost of capital for small businesses is rising because most small business funding comes at variable rates, borrowers need capital for growth,” he added. “Fortunately, they can find it at a variety of lending sources.”

Loans to labour 

The company set its findings against other variable factors in the industry to give an explanation of how these loans are being utilised.

Despite the on-going burden of the Great Resignation of the financial services industry particularly, data suggests that these loans are being used by small businesses to expand their industry footprint, particularly in the case of employment.

According to the US Bureau of Labor Statisticsjobs report, which was finally published on 8 July 2022 almost in tandem with the aforementioned results of Biz2Credit, total nonfarm payroll employment rose by 372,000 in June as the unemployment rate remained optimistic at 3.6 per cent.

Nonfarm payroll is a monthly statistic that records the number of people being employed by US manufacturing, construction and goods companies.

Notable job gains occurred in professional and business services, leisure and hospitality, and health care. Many of these jobs are created by small businesses.

“With unemployment so low, small business owners are still struggling to find workers. This, naturally, is driving up the cost of labour as demand outweighs supply,” Arora says. “Rising labour costs, combined with 8.6 per cent inflation in May 2022, continues to put a financial crunch on small companies.”

Author

  • Tyler is a fintech journalist with specific interests in online banking and emerging AI technologies. He began his career writing with a plethora of national and international publications.

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