Small-business owners who received loans from the Paycheck Protection Program last year gave high marks to community development financial institutions for overall service and low ones to fintechs that bill themselves as speedier alternatives to traditional lenders.
The grades were more mixed for banks and credit unions, according to a Federal Reserve survey of more than 15,000 small businesses released Wednesday. Six in 10 business owners said they were satisfied with the support they received from small banks — those with less than $10 billion of assets — but less than half said the same about large banks and credit unions.
The Fed has been conducting its small-business credit survey since 2016. The 2020 survey was focused heavily on the coronavirus pandemic’s impact on credit conditions and was conducted in September and October, several weeks after the first round of PPP lending closed.
Another round of PPP lending opened up last month and so far lenders have made nearly $73 billion of emergency loans to small businesses.
Big banks took early criticism for slow response times and prioritizing existing customers when PPP first launched in April. Online lenders had been hyped as alternatives for small businesses looking to quickly navigate the PPP process, but the Fed survey showed that speed was not necessarily a measure of customer satisfaction.
“That is not the case for many small businesses that don’t have specialized staff on hand who can easily devote time to completing an application or digitizing all of their records,” a Federal Reserve official, who asked not to be named, said on a call with reporters Wednesday.
About 42% of small-business owners who turned to online lenders for a PPP loan or other service during the coronavirus pandemic were dissatisfied with the support they received, and just 18% reported being satisfied.
Fintechs were also less likely than banks and credit unions to approve PPP loan applications, the survey found. About 47% of those who applied for PPP assistance through an online lender got the full amount they applied for, compared to 78% who got what they were hoping for through a small bank and 70% from a large bank. Sixty-three percent of credit union borrowers and 44% of CDFI borrowers said they received the amounts they requested.
The survey also found that fewer small businesses are turning to online lenders for financing than in years past. Of those surveyed, 20% said they applied to a fintech company for financing last year, down from 33% in the 2019 survey.
About 35% with lower credit scores were more likely to reach out to an online lender for a loan, compared with 11% who were considered a lower credit risk, according to the survey.
For the first time since the Fed began conducting the survey in 2016, businesses that experienced revenue declines and job cuts outnumbered those that reported gains. Fifty-three percent of those surveyed expected revenue to fall by more than 25% for 2020. More businesses were bracing for continued losses over the next 12 months than those who foresaw a rebound to positive revenues.
Here are some other finding from the 2020 survey:
- About 46% of small businesses that received all the funding they sought through PPP still had to reduce the number of workers on the payroll, but 71% of those who received no PPP help were forced to cut staff.
- Small businesses owned by people of color were in more dire financial situations than those owned by whites. Seventy-nine percent of Asian small-business owners reported being in fair or poor financial condition, followed by 77% of Black business owners, 66% of Hispanic owners and 54% of white business owners.
- The smallest businesses are hurting the most. Of those with fewer than five employees, almost two-thirds were in fair or poor financial conditions, versus less than one-third of those with between 50 and 500 workers.
- Eighty percent of firms in the leisure and hospitality business reported being in poor financial shape, compared to 64% in healthcare and education, 54% in retail and 50% in manufacturing.
- Thirty-seven percent of small businesses did not apply for a PPP loan because they thought they would not qualify. Nearly one in four did not apply because they found the process too confusing.
- Eighty percent of small businesses that received a PPP loan said they expected the debt to be fully forgiven.
