Only 30 percent of small businesses who sought traditional financing last year received their entire request, according to the Federal Reserve’s 2022 Small Business Credit Survey of nearly 11,000 small employers.
That’s a sharp drop from the 51 percent who received their full request in 2019, a number that dropped to 36 percent in 2020 as Paycheck Protection Program loans became available during the pandemic. Businesses that applied for PPP loans were less likely to receive their full requested amount in 2021 than in 2020 (67 percent to 76 percent, respectively). The report found that the share of firms that sought traditional financing dropped from 43 percent in 2019 to 37 percent in 2020 as the Paycheck Protection Program began, before falling even further to 36 percent last year. Among those that did not apply for pandemic-related financial assistance programs last year, 36 percent said they did not need funding, while 44 percent didn’t think their business would qualify.
As reported by the American Banker, those statistics suggest that underwriting standards for commercial clients are diverging based on their size, as banks grapple with what risks they’re willing to take two years into the pandemic. According to a Federal Reserve study in 2021, more senior loan officers eased standards for large- and medium-sized businesses than for smaller companies. Still, small bank applicants had the most favorable outcomes when they did apply for PPP funding: 71 percent received all of the funding they applied for, compared to 65 percent of large-bank PPP applicants and 41 percent of online-lender PPP applicants. Small bank applicants were also more likely to be satisfied with their transactions: 76 percent compared to the 62 percent of large-bank applicants and 39 percent of online-lender applicants.
The report revealed that many firms are still reeling from the pandemic: 77 percent are still reporting negative impacts, especially in the leisure and hospitality industry, where nearly half of respondents said conditions hadn’t completely rebounded.
Employers also reported on challenges in attracting and training staff: Sixty percent of firms said that hiring or retaining “qualified staff” and overcoming supply chain issues are the top operational challenges they faced in the prior 12 months.