Expanding Online Small Business Loans Help Black-Owned Businesses and Other Small Businesses

Small business lending continues to improve steadily, but at a slow pace. While the rebound in percentage approval rates for small business loan applications pales in comparison to the pre-pandemic highs recorded in February 2020, the direction has been generally positive for about a year at this point.

For example, small business loan approval percentages at large banks ($10+ in assets) increased from 14.3% in December to 14.5% in January 2022, and small bank approvals are also fell from 20.1% in December to 20.3% in January, according to the latest Biz2Credit™ Small Business Loan Index.

Among several categories of non-bank lenders, approval percentages also climbed. Institutional lenders approved 25.1% of funding requests in January, up two tenths of a percent from 24.9% in December. Alternative lender approval rates fell from 26.1% in December to 26.3% in January. Credit unions approved 20.7% in January, up a tenth of a percentage after stagnating the previous two months.

Two years ago, bank approval percentages were almost double what they are today. In January 2020, large banks approved 28.3% of loan applications, while small banks approved 50.4% of loan applications. The percentages of non-bank lenders in 2020 were even higher: institutional lenders approved almost two-thirds (66.4%) of applications, alternative lenders granted 56.1% and credit unions approved 39.6 %.

This indicates that banks and most non-bank lenders are slowly but steadily increasing their loan approval percentages as business owners seek to reinvest in their businesses. Still, approval percentages are growing more slowly than anyone had hoped. An expected increase in interest rates from the Federal Reserve could encourage them to open the purse strings a little more. Loan approval rates are still well below January 2020 pre-pandemic approval levels.

A positive outcome of the COVID crisis is that it has accelerated the transition to small business digital lending. More and more small business owners are now more comfortable borrowing or applying for credit online, which was not the case before the pandemic.

In fact, the Electronic Transaction Association (ETA) published a white paper, “Creating a More Inclusive Economy: How Fintech is Advancing Digital Resources for Underserved Communities, who found that online small business loans expand access to credit and provide affordable alternatives to traditional loans for small businesses looking to grow.

The analysis revealed that online small business lenders are willing to provide small businesses with smaller loans (typically less than $250,000) and shorter terms that suit their day-to-day operational needs or business cases well. short-term use. He concluded that policy makers should support the development of new technologies that enable the underserved to access financial products and services from fintech companies by establishing policies that support innovation and the use of technology in services. financial.

The need for the banking industry to keep up with technology has never been more evident than during the Paycheck Protection Program (PPP), which the SBA and the Treasury Department put in place to provide a lifeline to small businesses struggling with the COVID-19 pandemic. .

This reality has prompted banks and non-bank lenders to increasingly seek to digitize their small business loan application process. Digital learning and AI have helped reduce loan risk, while digitization has streamlined the process and reduced the time needed to make a decision.

In February, we celebrate Black History Month, which highlights people who have made a difference, as well as successful business owners. According to US Census Bureau figures on minority-owned businesses released in October 2021, Black-owned businesses generate $133.7 billion in annual revenue, employ 1.3 million workers, and generate $40.5 billion in revenue. dollars in annual payroll.

The biggest challenges for black-owned businesses are access to capital and cash flow issues, which the Network Journal called “a major culprit for the failure of black-owned businesses.”

Businesses with positive cash flow have the operating funds to pay suppliers and staff, reinvest in the business, and ultimately grow. The best way to help Black-owned businesses succeed is to expand access to capital, especially digitally. With the end of pandemic-related government support through programs such as the (PPP) and EIDL (Economic Disaster Loans), it is now up to the private sector to finance the growth of Black-owned businesses. and to Maroons, women. owned companies, and in fact all small companies looking for growth capital.

Small businesses create the lion’s share of new jobs in the economy. The entrepreneurial spirit is alive and well. People who have decided to take matters into their own hands and start businesses – whether by choice or necessity – need capital to grow. In order to continue the COVID rebound, lenders need to open the purse strings wider and allow greater flow to small businesses that need financing to thrive.

Janet E. Fishburn