US banks reject 80pc of SME loans
US banks of all sizes are rejecting more than 80 per cent of business funding requests, in a reflection of the UK funding environment.
According to the latest Biz2Credit Small Business Lending Index, in May 2023 just 18.7 per cent of small business loan applications were approved by the US banking industry.
This has led industry experts to suggest that small- and medium-sized enterprises (SMEs) in the US should consider alternative financing options such as peer-to-peer lending and other fintech lenders.
“It’s a very tough time for small businesses looking for credit right now,” said Rohit Arora, chief executive of Biz2Credit.
Read more: Varengold restricts payment transactions amid restructuring
“Not only that, the cost of capital continues to rise as the Fed is contemplating more interest rate hikes to try to quell persistent inflation.”
Arora added that “bank lending is stalled right now”, due to a slowdown in new deposits and the ongoing high interest rate environment.
“The banks are getting hit on both sides of the equation, so they are not lending,” he said.
Read more: Iwoca: SMEs deprioritising going green due to high costs
Meanwhile, non-traditional lenders are stepping in to meet this demand. Approval percentages at non-traditional lenders rose from 28.7 per cent in April to 28.9 per cent in May.
“With high employment, rising oil prices, and persistent inflation, there is a good chance that the Fed will once again hike interest rates another 25 bps in June or perhaps they will wait until July,” Arora added.
“We can expect that the cost of capital will continue to rise for small business borrowers.”
Read more: FCA to chair new open banking working group