culled from:articleword.net
With plummeting gasoline prices and consistent job growth, small business owners seem more confident than ever that the economy is improving. In fact, the National Federation of Independent Business’s most recent Small Business Optimism Index shows that optimism has jumped to a near eight-year high.
Only 4 percent of the entrepreneurs reported that all their credit needs went unmet–an historic low. Better yet, only 3 percent identified financing as their top business problem. About 33 percent of small business owners reported borrowing on a regular basis, up five points and high compared to recent experience. The average rate paid on short maturity loans increased 10 basis points, to 5.6 percent, which is still quite low.
Optimism abounds for both small business borrowers and lenders, particularly at big banks ($10 billion or more in assets), which approved 20.8 percent of loan applications last month, according to my company’s November 2014 Biz2Credit Small Business Lending Index, a monthly analysis of 1,000 loan applications.
During the Great Recession, which started around this time in 2008, big banks essentially stopped lending to small businesses. At the time, consumers were not spending, businesses’ profits were down, and the banks became very risk averse. They had been burned by the housing bust, and only the highest quality borrowers were being granted loans.
Times have changed substantially since then. Today, funding requests are being approved by big banks at post-recession highs for the following reasons:
1. Borrowers’ financials are solid
Since 2012, the economy has grown, and small businesses are reporting several consecutive years of fairly robust earnings. Entrepreneurs applying for expansion capital have better track records now than they did when they applied for funding during the throes of the recession. If revenues and profits are down, banks aren’t willing to lend. When the economy is strong, it is easier for them to say yes.
2. Better name recognition
The top banks in the country have substantial resources to spend on marketing and benefit from having a vast branch system that reinforces their brand names–even as some big banks are consolidating those branches. When all things are equal, people tend to stay with things that are familiar. This is an advantage that big banks have.
3. Size matters
Big banks generally offer more attractive interest rates than their smaller competitors. As they continue to show their commitment of lending to qualified small business owners, borrowers will seek loans from big banks in order to get the best deals.
4. Investment in the future
Investment into digitization is paying off for big banks, as more and more of them have upgraded their small business loan application process. More banks than ever are accepting online applications. Additionally, as people increasingly seek to conduct business via smartphones and tablets, the big banks are able to accommodate them. Failing to streamline the loan application experience has hurt many smaller competitors, particularly local and regional banks and credit unions, that have not invested in the technology required to process online loan requests.
Signs seem to indicate that 2015 will be a good year for small business growth. With a steadily growing economy and optimism towards the future, entrepreneurs very likely will be able to secure capital they need to expand their enterprises.
