The stop in capital flow came at a time of year when small businesses traditionally search for funding. The economy, which is still in the weak recovery phase, simply cannot sustain this kind of disruption.
New York, NY (PRWEB) November 12, 2013
The government shutdown in October had a significant negative impact on small business lending, according to the Biz2Credit Small Business Lending Index, a monthly analysis of 1,000 loan applications on Biz2Credit.com.
Small business loan approvals at big banks ($10 billion+ in assets) dropped to 14.3% in October 2013, which is nearly 20 percent lower than the approval rate of 17.5% recorded in September. Additionally, approval rates at small banks dropped from 50.1% in September to 44.3%, which marks the lowest figure since August 2011.
Further, credit unions, which had been on the lending rebound prior to the government shutdown, experienced a 4% decrease in approval rates in October. Lending approval rates at credit unions fell to an all-time Index low of 43.4% in October from 45.4% the previous month.
"SBA loan approvals stalled because the agency was not working for three weeks. Similarly, non-SBA loans could not be processed during the government shutdown because the IRS was closed," said Biz2Credit CEO, Rohit Arora who oversaw the research.
"Banks could not acquire income verification from the IRS during the shutdown, which is needed to approve many loan requests," continued Arora, one of the nation's top experts in small business finance. "A major backlog of SBA loans from the shutdown will take months to process, and the debt ceiling debate could negatively impact small business lending even further in the coming months."
Meanwhile, alternative lenders seized the opportunity and picked up the slack in small business lending. Approval rates by alternative lenders increased to an all-time Index high of 67.3% in October 2013, up from 63.2% the previous month.
"Small business owners were desperate for capital during the shutdown and turned to alternative lenders, who were willing and able to provide money, but at a much higher interest rate than a bank or credit union would charge," explained Arora. "The stop in capital flow came at a time of year when small businesses traditionally search for funding. The economy, which is still in the weak recovery phase, simply cannot sustain this kind of disruption."
Arora expects that funding approval rates will climb in November as the banking industry recovers from the shockwave of the government shutdown.
Click here to view the historic chart of the Biz2Credit Small Business Lending Index.
About the Biz2Credit Small Business Lending Index
Biz2Credit analyzed loan requests ranging from $25,000 to $3 million from companies in business more than two years with an average credit score above 680. Unlike other surveys, the results are based on primary data submitted by more than 1,000 small business owners who applied for funding on Biz2Credit’s online lending platform, which connects business borrowers with more than 1,200 lenders nationwide.
Founded in 2007, Biz2Credit has arranged more than $1 billion in small business funding throughout the U.S. and is widely recognized as the #1 online credit resource for startup loans, lines of credit, equipment loans, working capital and other funding options.Using the latest technology, Biz2Credit matches borrowers to financial institutions based on each company's unique profile -- completed in less than four minutes -- in a safe, efficient, price-transparent environment. Biz2Credit’s network consists of 1.6 million users, 1,200+ lenders, credit rating agencies such as D&B and Equifax, and small business service providers including CPAs and lawyers.Visit http://www.biz2credit.com, follow on Twitter @Biz2Credit, and Facebook at http://www.facebook.com/biz2credit.