Loan approvals by small banks rose 0.3% as banks start to assess the favorable economic conditions that are beginning to emerge as lockdowns ease and more and more people receive a Covid-19 vaccine. Pent-up demand from consumers is an attractive narrative for small business owners to use as part of their justification for applying for financing. Banks, especially smaller community and regional institutions, are taking notice of this trend as they begin to open up their lending operations to the post-pandemic reality.
Next month’s lending figures will be more significant now that the federal government’s Paycheck Protection Program (PPP) has completed its second round.
Businesses that are still reeling from the economic impact of the pandemic will have to look for other sources of funding. Look for business loans—especially loans from online or digital providers—to see a jump in activity now that PPP is closed.
Credit unions edged up from a 20.3% approval rate in April, to 20.4% in May 2021. Other non-bank lenders inched up slightly. Institutional lenders approved 23.6% of funding requests in May, up from 23.5% in April. Meanwhile alternative lenders approved 24.3% of funding applications in May 2021, up from 24.0% in the month prior.
Alternative lenders saw a significant increase in approval rates in May while at the same time handling an ever larger number of loan requests, thanks to the shift towards online finance in the small business space. With the conclusion of PPP, banks are focusing on forgiveness and may not be ready to ramp up small business lending that is not government-backed.
Many borrowers will have to turn to non-bank sources of funding, including alternative lenders, institutional lenders and credit unions. These lenders are all starting to respond to the demand, and many will see their approval rates rise as customers who used to get loans from a bank are now looking to alternative sources of financing.
What types of government assistance can small businesses apply for now?
Covid-19 Economic Injury Disaster Loans provide economic relief to small businesses and nonprofit organizations that are currently experiencing a temporary loss of revenue. The loans are meant to help businesses meet financial obligations and operating expenses that could have been met had the disaster not occurred. For loans approved starting the week of April 6, 2021: 24-months of economic injury with a maximum loan amount of $500,000. Terms are 3.75% (fixed) for businesses, 2.75% (fixed) for nonprofits for 30 years with no pre-payment penalty or fees. The loans can be used for working capital and normal operating expenses. (For example: continuation of health care benefits, rent, utilities, fixed debt payments.) Collateral is required for loans over $25,000. The SBA uses a general security agreement (UCC) designating business assets as collateral, such as machinery and equipment, furniture and fixtures, etc.
The Shuttered Venue Operators Grant program was established in the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act and amended by the American Rescue Plan Act to provide over $16.2 billion in economic relief to target industries.
To be eligible, applicants must have experienced a 25% reduction (or more) in gross earned revenue between corresponding quarters in 2019 and 2020 and must have been “fully operational” on Feb. 29, 2020. The SVOG portal is now open to receive applications from operators of live venues, live performing arts organizations, museums, and movie theatres, as well as to companies such as live venue promoters, theatrical producers, and others.
NIH grants are available to small businesses that develop and research biomedical technology related to Covid-19. There are multiple grants available.
Companies that do not qualify for the special programs listed above will have to look at more traditional types of funding (loans, cash advances and other non-government forms of support).