In the U.S. economy, small businesses reign supreme, accounting for a remarkable 99.9% of all businesses, as stated by the Small Business Association. As we bid farewell to Small Business Month, it becomes increasingly vital to acknowledge the challenges these businesses face in the current economic climate, particularly when it comes to securing new financing.
In April, the National Federation of Independent Business (NFIB) released its Small Business Optimism Index, revealing a decrease of 1.1 points to 89.0, marking a 10-year low. The main factors behind this decrease were worries regarding the immediate economic prospects and the escalation of interest rates.
Moreover, it indicated that accessing credit could become more difficult for businesses. With interest rates on the rise, the tightening of credit, and recent developments in the banking sector, banks have become even more cautious when dealing with small businesses seeking loans.
While obtaining capital is still possible, today’s business landscape is far less forgiving. As a result, business owners must carefully consider their loan requirements to navigate this challenging environment successfully.
But how can you determine if now is the right time to seek financing? Which loan type best suits your needs? And how can you demonstrate your ability to repay the loan? These three critical questions will help guide you in your decision-making process.
It’s no secret that obtaining financing today is more challenging compared to two years ago. With increased borrowing costs and tighter credit, banks have become more selective when considering loan applications. Therefore, it is crucial for businesses to view their bank as a trusted advisor and consult them to assess whether the timing is suitable for a new loan or explore alternative finance options.
Whether you want to remodel an existing one, start a franchise, or venture into an entirely new business, various types of loans cater to different purposes. When seeking financing, it is wise to partner with a bank that boasts a diverse portfolio and a track record of lending to businesses across multiple industries.
Start-ups and new businesses often find Small Business Association (SBA) loans to be well-suited for their needs. These loans, guaranteed by the SBA and issued by participating lenders, are ideal for for-profit businesses led by experienced owners who meet the standard approval requirements. With the SBA guaranteeing up to 75% of the loan amount between $150,000 and $5,000,000, this type of loan provides excellent support for new business owners.
Franchise businesses are gaining popularity, as highlighted in International Franchise Association’s recent report. The report indicates that franchise unit and job growth continue to outpace pre-pandemic levels, with an estimated addition of around 15,000 units in 2023. To cater to the financing needs of local franchise owners, commercial and regional banks like ours offer tailored solutions.
Additionally, working capital lines of credit, commercial real estate loans, and C&I (Commercial and Industrial) loans are in high demand and can support larger, well-established businesses. It is crucial to find a reputable bank with expertise in your industry, as they can provide insights into how the economic landscape may impact your business and suggest the most appropriate loan types.
When seeking financing, assembling the right components to enhance your chances of securing the loan is essential. Firstly, ensure you have a comprehensive business plan with up-to-date financials or projections demonstrating your business’s profitability or imminent profitability. Additionally, check your credit score, as lenders often use it as a preliminary indication of your ability to manage debt.
For those looking to improve their approval odds, having a cosigner can be an option, provided they have something substantial to contribute. Factors such as equity contribution and available collateral to support the loan are also taken into consideration.
As small business owners grow increasingly concerned about their access to capital, it is vital to carefully consider your loan needs, stay informed about shifting trends and consumer behaviors, and evaluate your ability to meet repayment obligations.
Small businesses are the lifeblood of America, driving job creation and leading the charge in innovation. Despite the challenges of today’s economic environment, it is crucial not to abandon your ideas or hold back on pursuing your dreams. Instead, exercise caution, assess risks, and strategize with your bank before venturing into new financing opportunities. So we can navigate these uncertain times and help small businesses thrive together.