Funding requests for small businesses declined for banks in March thanks in part to the Silicon Valley Bank ordeal. Loan approval also slipped again from 14.2% to 13.8% according to the Biz2Credit Small Business Lending Index.
The market has experienced a steady decline for banks over the past two years. Small banks fell from 21.3% approval to 19.1%, more than 2%. Interestingly, credit unions actually rose slightly month over month.
“The collapse of Silicon Valley Bank (SVB) shook the confidence of small business owners. Many of them rushed to take their deposits out of small and midsize banks.
That development hurt the banks’ ability to lend. Thus, it has become even harder for companies to secure capital,” said Rohit Arora, CEO of Biz2Credit.
Arora noted that approvals fell dramatically in the final days of March as businesses pulled deposits from small banks and community banks. As reported earlier by Banking Exchange, big banks were the beneficiaries of small businesses moving deposits to larger institutions due to the perceived safety the larger banks offer.
Community banks have restored some confidence this month, backed by encouraging signals from lawmakers, but the market is still uncertain for small business loans.
Small businesses are still looking to alternative options for their lending needs beyond traditional banks. Small business unemployment continues to be at historic lows.