Business Loan Trends in 2019
The recent strength of the American economy has translated into many positive factors in the world of small business financing. A summary of some recent statistics shows that through factors such as available capital and lending, accounting practices, debt levels, and alternative forms of financing, small businesses should be doing well in the upcoming year as long as they avoid some common pitfalls.
Overview: a positive outlook
Current data shows that many firms expect growth in important areas such as revenue, employment, and optimism that these trends will continue throughout 2019. The annual economic report of the president that is released to congress and outlines economic trends also shows a healthy environment for businesses to flourish based on most of their standard indicators. New businesses are emerging at a faster rate than in previous years and individuals who were either unemployed or not counted in labor statistics have re-entered the workforce. This government report also believes that much of this improvement can be attributed to economic policy, and a continuation of current economic actions will sustain these positive factors into the foreseeable future.
According to the U.S. Small Business Administration, some of the most populated U.S. states, such as California and Florida, experienced higher levels of growth in 2018 than the U.S. overall rate of 3.4%. The small businesses in these large states employ millions of people collectively. Such trends could possibly signal even further movement to larger coastal cities as magnets for human talent and financial investment.
The demand for financing
These same businesses are also in need of financing options such as loans, credit, private investors, and government programs. This need for financing options is great enough that some smaller businesses may not have all of their funding needs met easily or at all. This problem is especially true for businesses owned by women, who tend to have more difficulties getting access to capital. An alarming 62% of women said that issues securing funding were their biggest obstacles.
Securing financing online
Online lenders are increasing in popularity, as many businesses now prefer this route to secure funding over traditional banks. This is because of the ability of these services to generally offer cheaper rates and faster turnaround times on business loans than financial institutions, who require meetings and have to pay for the overhead associated with a physical office space. Online lenders also tend to have less restrictive terms, meaning that some small businesses may turn to them after being declined by the banks.
The average small business loan that was secured in 2018 was for about $660,000. SBA loans averaged about $417,000 each. Larger loans were associated with traditional banks and national brand names, while alternative forms of funding mostly remained in the range of tens of thousands of dollars. Some of the familiar names that were responsible for the largest volumes of business loans include Wells Fargo, Chase, and TD Bank. Businesses that need loans in the hundred thousand dollar amounts or greater are still advised to use the services of these banks or SBA loan programs as their best option, while online lenders or alternative financing tend to secure smaller loans more easily.
Despite the positive news, many small businesses also reported significant problems related to financial matters. Collecting payments, managing cash flow, and handling accounting paperwork were the among the largest small business problems. The same set of data also showed that an accountant was the most important outside professional to their businesses, yet about one third were not satisfied with the accounting services they received. About the same percentage also expressed concerns that they were paying too much in taxes.
High debt levels
Both businesses and the individuals who own them are in more debt than ever through things like loans and credit cards. Companies in the U.S. collectively hold $6.3 trillion in various kinds of debt. While many large, multi-national corporations are the largest carriers, it is important for small businesses to realize that debt can become a significant source of problems during slowdowns, recessions, and sudden changes in tariff laws. Part of this problem in high debt levels is attributed to more lenient borrowing terms during the most recent streak of economic expansion, which can create dependence on easily obtained money.
Motivations for business owners
Many small business owners are going off on their own because they want to be their own boss. Career satisfaction and work life balance concerns were also more prominent than monetary concerns among younger entrepreneurs than baby boomers. Those who remain alone in the early stages have a much higher chance of success than businesses that start off with teams of employees. This means that solo entrepreneurs should be especially mindful of having their business and personal finances in order to gain consistent access to various kinds of necessary funding, as they are less likely to receive much outside help.
Small businesses should be able to either continue on their current path of success or get a good start in 2019. However, metrics such as cash flow, proper accounting, and debt management will be crucial areas of concern, as these are the most likely to cause problems.