Small Business Lending is Up

Small business loan approval rates are rising, albeit slowly, as small businesses in various industries look for ways to navigate the challenging economic landscape and supply chain disruptions that have become standard this year. The rising interest rates drive up the cost of borrowing, but they also create greater incentive for banks to lend. And while small business loan approval is far below its pre-pandemic levels, its slow rise is a step in the right direction.

Small business owners pursue loans for a variety of reasons that depend upon the type of business, its size, and its overall goals. Cash flow for seasonal businesses can be precarious, for instance, and loans can often provide a needed financial cushion for slow periods. Businesses that are looking to grow need to invest in expansion tools like wider advertising, larger space, upgraded technology, and additional staff. Prior to the pandemic, a lot of small business loans were assumed for the purpose of expansion; over the last two years of slowdowns and shutdowns, however, small business loans were commonly needed to provide funds to cover day-to-day operating expenses.

Small business loans and lines of credit continue to be a lifeline for companies that are just starting out as well as those looking to expand. Some common uses for small business loans include:

· starting a business

· purchasing an existing business

· buying inventory

· investing in equipment

· buying commercial space

· renovating space

· upgrading technology

· increasing marketing

· refinancing debt

Small businesses with years of experience and documented income history are in the best position to qualify for a loan. Standards for loan approval vary by lender, but good credit is always important to securing the best rate and terms. Experts recommend working with a trusted lender and shopping around for the best rate and lowest fees before committing. Since business loans do involve financial risk, mixing personal and business finances is not recommended.

Organized financial records prevent excessive debt

A small business loan can be best utilized if the applicant has a detailed plan—for both the loan’s specific purpose and for the repayment. Going over your books to track expenses and analyze cash flow will help you determine how much money you actually need so that you do not take on overwhelming debt. Making the loan payments on time further helps build good business credit and will make future borrowing easier.

Technology investments drive up borrowing

The technology innovations of the last decade are what enabled many small businesses to stay afloat during the pandemic when a lot of commerce moved online and a lot of workers went remote. Business investment in technology upgrades is predicted to grow substantially over the next three years, as cloud-based software will continue to be vital for small businesses who depend on real-time data, remote working options, mobile sales, online payment options, digital marketing integration, and automated bookkeeping, accounting, and payroll.

Running out of capital is one of the biggest reasons small businesses fail.  Business loans and lines of credit can help bridge a financial gap, aid in expansion, and keep technology cutting edge so that a company can remain competitive. As wages rise and inflation holds steady, small business owners have to think creatively about their funding sources and the best uses for small business financing.