Small Business Bank-Loan Applications Keep Dropping

Fewer small businesses are applying for commercial loans from banks, according to a monthly survey by American Banker.

According to the survey of U.S. bank executives, the index for commercial loan activity fell to 49.7 in November from 56.5 in October. The index stood at 56 in November 2013. The lowest previous reading was 53 in July 2012, a month after the index was launched.

Bank executives at a conference in early December said the problem was specifically a slowdown in small-business loan applications. “We’ve seen a decline in the smaller customer segments,” said Tayfun Tuzun, CFO at Fifth Third Bancorp, at the Goldman Sachs-sponsored conference.

While applications are down, commercial loan approvals by banks continued to increase, but at a slower rate. The index for approvals was 53.2 for November, down from 56.4 in October and 57 a year earlier. Some of the 271 executives responding to the survey expressed optimism that the quality of applicants was improving even if the quantity had fallen.

Loan pricing remains a challenge for bankers. The readings for consumer pricing (48.3) and commercial pricing (47.8) revealed that lenders are continuing to keep rates low in order to lure the most creditworthy borrowers.



The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.

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