Challenges to commercial credit market as the pandemic wears on
While the commercial lending following the rollout of the Paycheck Protection Program has slowed, there are hopeful signs on the horizon for small business owners, even ones who received funding in the first round of loans. A new version of PPP working its way through Congress has support from both sides of the aisle, even as larger parts of the stimulus package remain contentious. With most of the funds from the original package running out for small businesses after 24 weeks, new government intervention is needed to support struggling small businesses.
Without government action, the non-PPP commercial loan market is contracting as qualifying standards become more stringent and credit tightens. In fact, a survey by Biz2Credit highlighted in American Banker found that approval rates for market-based small-business loans had tumbled 14.5 percentage points in less than six months, from 28.3% in February to 13.8% in June. One of the biggest complicating factors for banks and credit unions for underwriting loans right now is predicting just how long the pandemic will wear on and how small businesses will be positioned for repayment in the future.
With banking providing critical support in this moment, PwC says banking’s role as a lender can help provide stability as people and businesses navigate these choppy pandemic waters. Both community banks and credit unions are focusing on loan relief and loan volume programs that can help. But the financial services industry can’t bear the burden and risk of consumer and commercial lending alone. New governmental support is critical in shoring up banking’s ability to provide the kind of trusted support that businesses and people seek to help overcome the current crisis.