Entrepreneurs are optimistic. Private sector employment increased by 145,000 in December, while the unemployment rate remained at 3.5%, according to the Bureau of Labor Statistics’ Jobs Report issued on Friday, Jan. 10, 2020. Many of these jobs are created by small businesses.
A lot of companies apply for funding at the end of the year since a time when their owners are looking forward at their growth plans. Interest rates are low, thanks to several recent cuts by the Fed, and with the strong economy, the time is near perfect for small businesses to borrow for growth. If you have a solid business, banks are willing to lend.
In fact, the approval percentage for small business loan applications at big banks ($10 billion+ in assets) rose one-tenth of a percent to reach 28.2% in December 2019, a new post-recession record high, according to the latest Biz2Credit Small Business Lending Index™.
The 2019 fiscal year was a great year for SBA lending, and I expect this trend to continue. The approval rate at small banks, which often are SBA-approved lenders, climbed one-tenth of a percent from 50.5% in November to 50.6% in December.
Smaller banks process a lot of SBA loans, which reached record levels in 2019. Lending at regional and community banks is still strong. However, regional and community banks cannot rest on their laurels. As big banks remain active and invest in digital loan application technology, smaller banks must either partner with FinTech companies or spend to develop their own systems.
Non-bank lenders continue to be key sources of capital.
Institutional lenders’ approval rates rose one-tenth of a percent from November’s figure to reach 66.2% last month. Institutional lenders are a good source for small business funding. They offer financing at reasonable interest rates and are becoming increasingly important players in small business lending.
Small business loan approval rates among alternative lenders remained at 56.3% in December. Alternative lenders are a consistent source of capital for companies that need money quickly or that don’t qualify for bank loans. Alternative lenders can help companies during times of short-term cash crunches, but the interest rates they charge are higher than other lenders. The approval percentage rate for credit unions remained unchanged at 39.7% in December.
If you are considering borrowing money for growth in 2020, here are three things I would advise:
- Check your credit score. Make sure that your score reflects your creditworthiness and that things that happened years ago are no longer blemishing your record.
- Don’t wait until April 15 to file your taxes. If you had a good year in 2019, as many small companies did, don’t wait until the filing deadline of April 15 (and don’t file an extension). Lenders want to see your most recent financial history. If sales and profits went up last year, be quick to report it – even if you owe the IRS some money. The figure you might be obligated to pay may be much less than the amount of money you need to borrow to open a new location, for example.
- Fill out an application and complete it with all the information that is required. Having an incomplete credit application is the reason many potential borrowers get rejected. If the loan application process requires submitting 2019 P&L statements or tax returns, be sure to include them. Otherwise, your request might not be considered.
The new year – and the new decade – bring optimism. If you have growth plans, don’t sit on the sidelines. Act now and take advantage of near historic low borrowing rates and the willingness of lenders to make loans.