Loans are getting tougher for small business

December 6, 2023/Business/

You’ve probably heard it said before, “The only businesses that can get loans are those that don’t need them“.

There’s probably some truth to that statement because if you really need a loan for your business to function, your lender might worry about the cash-flow you generate and the ability to pay the borrowed amount back. If you are a lender collateral is nice to have, but the ability to pay back is even more important because your lenders don’t really want to have to access collateral.

This article from the Associated Press details the difficulty that small business in America are now having in getting credit for their operations. Interest rates, which have risen over the past 24 months, make those payback amounts higher which in turn make re-payment more difficult.

Here’s some excerpts from the article about small business loans in America right now:

49% of banks say they have tightened lending standards

In June 2022 big banks approves 15.4% of small-business loan applications. That number now sits at about 13%.

At smaller banks about 20% of loan applications are being approved. Contrast that with a 50% plus approval rate in the pre-pandemic years.

Average short-term interest rates were 4.9% in October of 2021, 6.7% in October 2022, and were at 9.1% in October 2023.

Those numbers are making it more difficult with all kinds of businesses to change with the times. . . . .maybe it’s a restaurant adding drive-through lanes or maybe it’s your funeral home wanting to add a crematory and room for such. . . . or a hospitality room.

It’s an interesting dilemma, especially in the death care business. As consumer choices change you need to be able to change with them to make sure that you can continue to attract the business to your door. . . . . If you are finding that your clients want “cremation and hospitality” rather than the old standard of “caskets and visitation” you need to have the facilities to provide those services.

That means making sure you have the proper facilities for the trending situations. . . . .and, having the ability to get credit to make those moves is important to get that done.

Sometimes it is just lucky timing, but most of the time planning and foresight will win out. Make sure that your business has a plan in place to save for that rainy day and a solid revenue stream to be able to pay back what you borrow if you want to grow your business.

There is hope that interest rate increases may be over and America may see rates being lower in 2024 and beyond. If you think that way make sure that you recognize that fact when you look at the length of term on any loan you may be taking out or re-newing in the near future.

We can’t always be right, but studying where rates may be going can many times help keep your payments lower over time.

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