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Small business optimism has been strong throughout 2017. While President Trump has had plenty of controversy, the stock markets have performed well since he was sworn in on January 20.
Fuel prices remain relatively low, the jobs report continues to show that we are near full employment, and small business lending has rebounded from the depths of the credit crunch to record levels by some measures.
Overall, it has been a good year for small business lending and Small Business Administration (SBA) lending. Here are the top five trends in small business finance.
According to the latest Biz2Credit Small Business Lending Index, my company's monthly analysis on small business loan approval rates, big banks are granting one in four requests for funding. It is the first time they have reached 25 percent since the index began in January 2011.
While we may never see the free flowing cash that predated the Lehman Brothers crash and the Great Recession, the spigot has been opened. In June 2011, only 8.9 percent of small business loan applications were approved.
Now, the figure is more than twice that. The Federal Reserve's decisions over the past 12 months to continuously raise interest rates from the near zero percent level of the past few years have made it more profitable for big banks to lend money. If we continue along this path in 2018, big banks will continue to lend.
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In FY17, the Small Business Administration (SBA)'s flagship 7(a) program provided more than $25.44 billion in funding across 62,430 loans. Smaller banks, in particular, increased their activity in making SBA Loans.
SBA 7(a) Loans go up to $5 million and help growing companies with current operations and expansion. These loans can be used for a variety of business purposes including working capital, equipment acquisition, debt refinance, change of ownership, and real estate purchases.
SBA CDC/504 Lending is a long-term financing tool designed to encourage economic development within under-served communities and among minority-owned businesses. CDC/504 loans can be used to acquire land or buildings, make capital improvements, build new facilities, or purchase machinery and equipment.
They are available through Certified Development Companies (CDCs), SBA's community-based partners. In FY17, the 504 program grew to $5 billion in loan volume and had a significant positive effect on businesses that have historically faced greater challenges in obtaining financing.
SBA Microloans provide short-term loans of up to $50,000 to small businesses and some not-for-profit organizations. They often go to startup businesses and companies that have little credit history
These loan programs are likely to remain popular in 2018.
After Hurricane Henry (Texas) and Hurricane Irma (Florida) devastated parts of those states this fall, SBA Disaster Loans helped get small business owners get back up and running. This critical funding helped them purchase equipment, replace inventory, make repairs and have working capital at their disposal in order to rebuild.
While no one knows how many hurricanes and other natural disasters will hit the United States in 2018, it's safe to predict that there will be some occurrences. The SBA has proven that it will be there in times of trouble.
Banks have come to understand that the old branch system is becoming obsolete and that there is an entire generation that has grown up that may have never set foot inside a bank other than to use an ATM machine.
Millennials tend to do everything on their phones - including online bill paying and applying for small business loans. In fact, 60 percent of the new applications filled out by small business owners on Biz2Credit.com are done via mobile devices, often at night or during weekends - well outside "traditional banker's hours."
The behavior of borrowers is unlikely to change. Thus, banks are increasingly investing in technology that allows the processing of digital loan applications.
Banks have two choices: either to invest on overhauling their own websites or partnering with a FinTech firm that has already developed advance technology and can seamlessly integrate it onto bank platforms. Look for such partnerships to grow dramatically in 2018.
During the credit crunch, alternative lenders--cash advance companies, accounts receivable funders, factors, and micro lenders--took advantage of the slowdown in bank loan volume. Alternative lenders were willing to provide capital to businesses that otherwise could not secure credit, and their use of technology enabled them to make quick decisions.
The high profile misfortunes of Lending Club and CAN Capital, once among the largest alternative lenders, did little to help the reputation of this category of lender. As banks and institutional lenders eventually made better use of technology and provided funding at attractive rates, they have claimed market share at the expense of alternative lenders.
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