The predominant thinking over the past few years has been that new regulations resulting from the Dodd-Frank Act have crippled small community banks and their ability to lend to small businesses, while large enterprises have continued to easily borrow from the capital markets.
Although the commercial and industrial loans of community banks may have been slower to rebound after the recession and generally lagged behind the larger banks in 2010 and 2011, recent data shows a change in the tide.
According to the Research Division of the FED from late 2014 through 2015, there has been a leveling of lending pace between small and large banks. Not only are they now on par for lending pace, they are both at an all-time high in terms of commercial and industrial loan values which is a promising sign for 2016 as we may now see a reinvigorated economy stimulated by small business spending.
Additionally, according to the NFIB, only 2 percent of small business owners reported that their borrowing needs were not satisfied – which is a record low. Many small businesses have been reluctant to even start the borrowing process because the general notion was that banks were not lending, but obviously recent data contradicts this thinking.
Some of this may be fueled by the rise of alternative nontraditional lenders such as online lenders which are making it easier for small businesses to borrow. Square, which is a payments startup that allows small business without elaborate POS systems to have credit card readers, is now lending cash to businesses that use their system. OnDeck and Fundation are two other nontraditional lenders that focus on small-business loans. New lending models like these are filling the gaps in the finance ecosystem which are underserved and are worth investigating if a business cannot find traditional lenders.
Additionally, the federal government is increasing efforts to ease small-business credit concerns by expanding access to U.S.-backed loan guarantees. All of these signs point toward a parting of the clouds that enveloped small-business financing.
So, now that we know there are more opportunities to borrow for small businesses, where should that money be invested? Recently cheaper and more effective technology solutions designed specifically for smaller businesses have hit the market allowing businesses from dry-cleaners to regional manufacturers to streamline processes and reduce overhead in the same way large corporations have done for years. With the rise in labor costs, any technology that can be implemented to increase efficiency is a solid investment.
In addition to investing in technology, it’s more important than ever to invest in promoting your brand. The way businesses market themselves has changed since the recession; although relationships are still the root of a strong business, how those relationships are generated has changed. In the digital age it is paramount that businesses find ways to cut through the noise and leverage new digital marketing channels such as social media and search engine optimization (SEO) to maintain a presence and stay top of mind and drive consumers to their store front or website. The U.S. Small Business Administration recommends spending 7 to 8 percent of your gross revenue for marketing and advertising if you’re doing less than $5 million a year in sales.
The rebounding economy, increased community bank lending, low interest rates, the state of regulation, less expensive technology and more informed consumers are all signs pointing in favor of smart small-business owners. In short, there’s never been a better time to borrow and invest in your business.