On Wednesday, Dec. 11, Federal Reserve Chair Jerome Powell announced that the central bank would not raise interest rates again in 2019 and will likely keep rates the same in the new year. The Fed’s cut announced in October had pretty much erased the increases that it enacted in 2018, and we can expect rates to be steady during the election year as Chairman Powell will come under pressure from President Trump to keep them low as he seeks a second term in office.
Powell said during his press conference that the Fed’s interest rate policy would remain similar unless inflation rose significantly. He believes “our economic outlook remains a favorable one.” In fact, the current economic expansion, now in its 11th year, is the longest in history.
Since the Federal Open Market Committee met in October, the labor market has remained strong and economic activity has risen at a moderate rate. Inflation is a bit less than the target rate of 2 percent, and the FOMC reports that longer-term inflation expectations are little changed. By holding serve and announcing that things will likely remain unchanged in 2020, the target range for the Federal Funds Rate will stay at 1.5 – 1.75 percent. The Fed will continue to monitor the economic outlook, including global developments as it assesses the appropriate path for interest rates during the coming 12 months.
Lower rates are beneficial for borrowers, obviously, and especially so for small business loans, which often are variable rate loans. Cutting the rates reduces the cost of borrowing. Thus, many business owners are willing to reinvest in their firms because there is less risk involved.
At the same time, the economy is still strong, and borrowers are in pretty good financial shape — factors that explain why small business loan approval rates have continuously gone up in 2019. Big banks, as well as smaller community and regional banks, have truly opened the spigot.
The approval percentage for small business loan applications at big banks ($10 billion+ in assets) inched up one-tenth of a percent to reach 28.1% in November 2019, a new post-recession high, according to the Biz2Credit Small Business Lending Index™ released on December 10, 2019.
Interest rate cuts by the Federal Reserve, optimism among small business owners, and an overall strong economy account for an incredibly strong period for small business lending. If you are a small business owner considering investing money in your firm, you may not see a time better than now.
Big banks are not the only lenders who have increased the flow of capital to small business owners. Approval rate at regional and community banks climbed one-tenth of a percent from 50.4% in October to 50.5% in November.
Small banks continue to approve more loan requests than they reject – for both traditional bank loans and SBA loans. As business owners look ahead and consider their growth path for 2020, I expect that small business lending at regional and community banks will be strong into the foreseeable future.
It’s not just the banks that are approving loan applications at high rates. The Biz2Credit Small Business Lending Index found that institutional lenders’ approval rates again inched up by one-tenth percent, reaching 66.1%, up a notch from October’s figure of 66%. Institutional lenders have successfully entered the small business lending marketplace. By offering loans at reasonably interest rates and longer terms, they have become an excellent source of capital for entrepreneurs.