Small business optimism has been strong during 2017. While as President Donald J. Trump has had lots of controversies, the stock markets have done well since he was taken oath on January 20th. Fuel prices continue to be exceptionally low, and it is also observed that we are near full employment, and small business lending has recovered from the credit crisis to record levels by some measures.
Overall, it’s been a great year for small business lending and Small Business Administration (SBA) lending. Here are the top small business financing trends.
Big Banks Are Back in The Game
According to a research on small business loan approval rates, large banks are granting 1/4 funding requests. And since January 2011, it is the first time they have reached 25%.
Even as we may never see the free flowing cash that outranked the Great Recession, the cork has been opened. In June 2011, only 8.9% small business loan requests were approved.
At present, the number is more than twice that. The Federal Reserve’s decisions to continuously raise interest rates during the last year from the near 0% level of the past few years have made it more effective for large banks to lend cash. If we continue to go that in 2018, large banks will continue to lend cash.
SBA Boosts Small Business Lending
In Financial Year 2017, the Small Business Administration’s 7(a) loan program given more than $25.44 billion in funding across 62,430 loans. Smaller banks, specifically, extended their activity in making SBA loans.
These are SBA loan programs that are likely to remain popular in 2018.
SBA 7(a) Loan Program
The SBA 7(a) Loans go up as much as $5 million and help developing businesses with current operations and expansion. These loans can be used for various business functions including working capital, equipment acquisition, real estate purchases and so on.
The SBA CDC/504 Loan Program
The SBA CDC/504 loan is a long-term financing program designed to encourage financial development within under-served communities and amongst minority-owned businesses. CDC/504 loans can be used to acquire land or buildings, make capital improvements, construct new facilities, or purchase equipment.
These loans are available through Certified Development Companies (CDCs) and SBA’s community-based partners. In 2017, the SBA 504 loan program raised to $5 billion in loan capacity and had a positive effect on companies that have historically experienced problems in getting financing.
SBA Microloan Program
SBA Microloan program offers short-term loans of up to $50,000 to small businesses and nonprofit organizations. Usually startup businesses and companies that have little credit history opt for that type of loan.
Disaster Loans Will Provide Lifeline to Small Businesses
After Hurricane Henry and Irma devastated parts of the Texas and Florida this fall, SBA disaster loans helped get small business owners get back up and running. This important funding program helped them purchase equipment, update inventory, make repairs and have working capital at their disposal to be able to rebuild.
While no one predicts how many natural disasters will hit the USA in 2018, it is safe to expect that there could be a few occurrences. The SBA has proven that it will be there in times of problems like that.
Growing Partnerships Between Banks and Fintech Companies
Banks need to know that the old branch system is now becoming obsolete and that there are many who have never set foot in a bank apart from using the ATM counter.
Millennials tend to do everything on their smart phones – which include online applying for small business loans and invoice paying. Actually, almost 60% of the new loan applications filled out by small business owners are done by smart phones, often at night or during weekends. The banks are investing in technology to allow consumers to process whole lending process digitally.