Small-business owners face challenges in current lending … – The Business Journals

Small-business owners are increasingly worried about getting loans — and they believe proposed regulations on banks would make things even worse.
According to a new survey by Goldman Sachs 10,000 Small Business Voices, 28% of small-business owners applied for a new business loan over the last year, and 70% of those owners said it was hard to access capital — up from 61% who said the same in survey results released by the group in April.
Additionally, 76% said not being able to access affordable capital has negatively impacted their business, and 73% said rising interest rates are having a negative impact on their business.
The Federal Reserve has raised its reserve rate from near zero early last year to 5.5% so far in 2023.
Meanwhile, the Fed is seeking public comment on a proposal that would require banks with assets of $100 billion or more to hold more money in reserve and would change the risk calculations for certain assets.
Eight-four percent of the small-business owners surveyed said they are concerned the proposal, known as the Basel III Endgame, would negatively impact their ability to get loans.
“Small-business owners are hanging on by a thread, but the thread is getting increasingly thin as capital is becoming more difficult and more expensive to access, meaning many businesses are having to halt growth plans and consider cost-cutting measures,” said Jessica Johnson-Cope, CEO and president of Johnson Security Bureau and chair of the National Leadership Council for 10,000 Small Businesses Voices, in a statement outlining the group’s latest findings. “Small-business owners appreciate the work of Congress to examine the impacts of the Federal Reserve’s Basel III Endgame as we are concerned the proposal will only worsen the ability of many small businesses to access capital.” 
Of course, the banking industry suffered through several high-profile collapses this year, most notably that of Silicon Valley Bank in March, a development that has revealed weaknesses in many banks’ balance sheets. Less than two months after the failures of Silicon Valley Bank and Signature Bank, regulators took control of First Republic Bank and sold the bank’s assets to JPMorgan Chase & Co. The fear that business deposits above the typically-insured Federal Deposit Insurance Corp. limit of $250,000 would be lost forced the Federal Reserve to guarantee all deposit amounts at those institutions.
The survey also found that:
The survey results come as big banks continue to pull back on lending. Loan approvals at banks with more than $10 billion in assets dropped from 13.3% in July to 13.2% in August. Approvals have dropped every month since June 2022, sliding from a rate of 15.1% in August 2022.
“If you are a small business looking for funding, you will have a difficult time securing it from big banks. We have seen it for more than a year,” said Rohit Arora, CEO of Biz2Credit, in statement detailing the latest loan-approval findings. “Big banks always had deposit money on hand. They always thought of it as permanent cheap capital. Now the interest rates are higher.”
Larger banks are hampered by the cost of their branch network even as the Covid-19 pandemic pushed more customers into digital banking — a trend that will not reverse itself, Arora said.
Meanwhile high interest rates mean consumers can get a good return on their money without depositing it in a bank, Arora said. That, in turn, hurts bank lending, as banks have fewer deposits on which to draw.
“Following the collapse of SVB and other mid-sized banks, we increasingly see depositors taking money out of banks and putting it into U.S. Treasuries, money market accounts and elsewhere. They have less money available to lend,” Arora said.
On Aug. 7, credit rating firm Moody’s Investors Service downgraded a number of banks and put several others on notice over issues related to funding strains and exposure to commercial real estate. An analyst at Fitch Ratings Inc. also warned it may be forced to downgrade banks.
Also this summer, about 50% of large and medium-sized banks said they have tightened their lending standards, according to a July Federal Reserve survey of loan officers. In that survey, 50.8% of the respondents said they tightened standards for commercial and industrial loans, up from 46% in April and the eighth consecutive increase. Smaller banks also have tightened standards for commercial loans, with 49.2% saying they had done so.
Despite the higher interest rates, small-business owners might still want to check out the Small Business Administration’s flagship 7(a) loan program. The agency recently rolled out a series of changes to make applying for a 7(a) loan easier.
The changes are part of two larger rules finalized by the agency this year, including a rule that ended the moratorium on nonbank lenders in its programs and a separate rule that streamlines affiliation requirements and other aspects of its lending program. That’s separate from a series of changes the SBA announced for its disaster-lending program, which dramatically boosted loan sizes and extended deferment periods for homeowners and business owners alike.
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