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For Your Small Business June 21, 2019

Banks Are Approving Small Business Loans at Rates Not Seen Since Before The Great Recession

Approvals of loan applications from small business owners reached the post-recession high mark (26.9%) at big banks (assets of $10 billion+), while small banks granted more than half of the small business funding requests they received in November 2018, according to the latest Biz2Credit Small Business Lending Index™.

Overall, 2018 has been a good year for both borrowers and small business lenders. Because the economy continues to show strength and companies are doing well, small businesses in search of capital have been able to find it. For good reason, optimism among entrepreneurs remains high, according to the October NFIB Small Business Optimism Index, which has trended upward for the past two years.

Meanwhile, the Fed has continuously raised interest rates over the past 18 months. While there are signs that the increases may slow down, the hikes have made it more profitable for banks to loan money – especially when compared to the near-zero interest rates that were in place during the post-recession credit crunch.

Technology has played an important role, too. Data analytics have become very advanced and have helped reduce lender risk. Thus, default rates on business loans are lower than ever before, according to Biz2Credit’s data. Further, banks and credit unions have been making SBA loans at record volumes.

SBA loans come with government guarantees against default that mitigates lender risk, thereby providing incentives for institutions to lend money to businesses that might not otherwise qualify for term loans. SBA loans help thousands of small businesses get off the ground each year, and I do not see an end to this trend anytime soon. SBA lending helps bolster the economy.

Despite recent stock market swings, small business owners are optimistic about the future and are investing in their companies, many of which had performed well over the past 12 months. It’s a good economic atmosphere for small business lending at the moment. I expect this to continue into 2019.

Meanwhile, the unemployment rate remains extremely low at 3.7 percent, according to The Bureau of Labor Statistics’ December 7 Jobs Report. Sectors that saw the largest job growth were health care, manufacturing, and transportation and warehousing. Many of those jobs are created by small businesses.

Companies are reinvesting in their firms while capital is flowing. Now is a good time to do it. Many companies have had strong performances in 2018. Those that have needed upgrades – technology improvements, new hires, facility enhancements – are finding the money to do it, reinvesting in their businesses and becoming better competitors. This is a wise idea for when the current roaring economy begins to slow down at some point.

There are also some common pitfalls which I would encourage all small business owners to avoid as we head toward a new year.

  1. Don’t live day-to-day: Too many small business owners enter a new year without having a clear business plan and goals for what they are going to achieve in the next 12 months. Now’s the time when you can put that plan in place and stick to it for the whole year. Make it your No. 1 business New Year’s resolution.
  2. Keep an eye on costs: When times are good, a lot of business owners are focused more on the top line and growing their companies, and rightly so. But you shouldn’t forget about the bottom line and the costs you’re taking on to achieve that growth. The end of the year is a great time to do a financial review of your business and see what costs might be weighing you down.
  3. Look for credit early: Even if you don’t have an urgent need for financing in your business right now, it’s still a good idea to look for new sources of credit. If you have a need for funding that comes up later in the year, you’ll be prepared in advance. Many smart business owners will actually put financing in place before they have any real need for it because they know they’ll get better terms and have more options if they apply when times are good.

Thus far, 2018 has been one of the best ever for small business lending. The Fed has signaled a slow down on interest rate hikes, which is helpful to borrowers. As long as the economy remains strong and interest rates stay reasonable, I expect small business lending to be robust as we approach 2019. While we may never again see the days when capital was free-flowing in the pre-recession period of the mid-2000s, the atmosphere for companies that need money for growth is quite robust.

 

This article was written by Rohit Arora from Forbes and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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