NEW YORK (11/14/13)--The federal government's partial shutdown in October took a toll on small business lending at financial institutions, including credit unions, according to Biz2Credit Small Business Lending Index.
The index provides a monthly look at loan applications on Biz2Credit.com, which arranges small business loans throughout the U.S. by matching borrowers to financial institutions.
Biz2Credit noted that during October, the Small Business Administration was closed for three weeks.
"SBA loan approvals stalled because the agency was not working for three weeks," said Biz2Credit CEO Rohit Arora. "Similarly, non-SBA [loans] could not be processed during the government shutdown because the Internal Revenue Service was shut down.
"Banks could not acquire income verification from the IRS during the shutdown, which is needed to approve many loan requests," Arora said, adding, "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."
Credit unions in the survey experienced a 4% decrease in approval rates during October. Their lending approval rates dropped to an all-time index low of 43.4%, down from 45.50% in September. That compares with 49.2% approval in October 2012.
During October, big banks approved 14.3% of business loan applications, down from 17.50% in September and 14.8% in October 2012. Small banks' approval rate also dropped to the lowest approval rate since August 2011.
The study indicated that small business owners desperate for capital at a time when small businesses typically search for funding turned to alternative lenders who charged higher interest rates than a credit union or bank would charge.
Arora said loan approval rates for small businesses likely would grow in November while the banking industry recovers from the shutdown's repercussions.