Business Loans

Business Owners Looked to Personal Loans During Early Days of Coronavirus Crisis

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Coronavirus (COVID-19) precautions have forced many small business owners to change their business models or close up shop. Entrepreneurs rushed to adapt — or simply keep the lights on — just as funding dried up and government assistance was slow to materialize in the early days of the coronavirus crisis.

In a new study, our researchers looked back at those critical weeks of mid-March. They found a spike in personal loan requests for business, using the last week of February as a baseline, followed by a steep decline as business owners finally saw some relief.

Key findings

  • Personal loan inquiries from business owners spiked during the week of March 15. The number of average daily requests shot up 12.3% over the previous week, although the average amounts requested were relatively low.
  • Those same inquiries plummeted the week of March 22, the same week Congress pushed forward on a groundbreaking relief bill. However, those who did seek personal loans for business purposes requested substantially more money than in previous weeks.


Two-week snapshot: Entrepreneurs scrambled for personal loans

The rush for personal loans for business use began the week of March 8 and picked up steam the week of March 15. Our researchers looked at loan inquiries made through organic consumer search. But by the week of March 22, those inquiries dropped off.

The increased interest in personal loans for business activity syncs with the spread of the coronavirus and the subsequent federal response, culminating in a $2 trillion stimulus package.

Here’s a timeline of events in March
  • Jan. 20: The first coronavirus case is confirmed in the U.S.
  • Jan. 30: The World Health Organization declares a global health emergency.
  • Feb. 24: The White House asks Congress to allocate $1.25 billion for a new emergency fund to prepare for an outbreak in the U.S.
  • March 6: Congress approves an even greater amount, $8.3 billion, and the Coronavirus Preparedness and Response Supplemental Appropriations Act is signed into law. Worldwide cases surpass 100,000 the same day.
  • March 13: A national emergency is declared in the U.S.
  • March 15: The Centers for Disease Control and Prevention (CDC) discourages gatherings of more than 50 people for at least eight weeks.
  • March 18: The Families First Coronavirus Response Act is signed into law, providing paid emergency leave, free coronavirus testing and other public health initiatives. The White House says an additional trillion-dollar rescue package is on the way.
  • March 25: The U.S. Senate passes a $2 trillion stimulus package to provide financial relief for individuals and businesses. Called the CARES Act — the Coronavirus Aid, Relief and Economic Security Act — the bill then goes to the U.S. House of Representatives.
  • March 27: The U.S. House of Representatives also approves the CARES Act, and it is signed into law the same day.

Personal loans for business: A closer look

Borrowers sought relatively modest amounts of money to cover business needs during the frenzied month of March. The average size of a personal loan requested for business purposes fluctuated in March, hitting a peak of $18,680 during the week of March 22, a jump from $15,999 in the baseline week of Feb. 23.

Although some online business lenders issue loans as small as $5,000, a number of alternative business lenders require larger minimum loan amounts, sometimes between $25,000 and $30,000 or higher. Traditional banks also typically have higher starting amounts for business loans, which could be between $20,000 and $25,000.

On the other hand, the average personal loan amount is $6,382. Entrepreneurs seeking small amounts of capital may view personal loans as a more viable funding option than business loans.

Financial regulators are encouraging banks, which offer more favorable interest rates than alternative lenders, to offer small-dollar loans during this time of economic uncertainty. The proposal drew harsh criticism from consumer advocacy groups including the Center for Responsible Lending, Consumer Federation of America, NAACP and the National Consumer Law Center. The groups warned of potentially high interest rates and predatory lending practices.

Relief for small business owners

Prior to the announcement of the CARES Act, self-employed business owners such as freelancers or contractors, who may have smaller financing needs than larger companies, could have explored the idea of taking out a personal loan to cover ongoing expenses while out of work.

That’s because self-employed workers, including contractors and freelancers, traditionally do not qualify for unemployment benefits, which are intended to temporarily replace lost wages. But the CARES Act opens unemployment benefits to workers who are normally ineligible.

Unemployment benefits expanded

Those who are self-employed or independent contractors, or have limited work history, may apply for unemployment benefits if they are unable to work as a result of the coronavirus outbreak. Pandemic Unemployment Assistance, as it’s called in the bill, will be available through December 2020.

It comes just in time: a record 3.3 million people applied for state-level unemployment benefits in the week ending March 21. As more municipalities and states enact stay-at-home orders and the closing of non-essential businesses to stop the spread of the coronavirus, that number will likely rise.

Business owners looking for further assistance related to the COVID-19 pandemic can visit LendingTree’s resource page for small businesses.

Methodology

Analysts tracked week-over-week changes in the average daily number of LendingTree users who selected “business” as the reason for their interest in a personal loan, as well as the average amount they requested following the week of Feb. 23, 2020. Analysts also indexed the changes to the week of Feb. 23, 2020 for a trend view. Inquiries were limited to those from organic consumer search, as changes in online marketing strategies can alter inquiry numbers through those channels over time.

 

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