The Future Of Small Business Lending - Possible Interest Rate Hikes


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The Future Of Small Business Lending

3 min read. October 8, 2021 – by Phil Fernandes

Small business lending has changed dramatically over the past several years. Alternative financing and the growth of online lenders has generated increased competition in an industry once dominated by banks and the Small Business Administration (SBA). Small businesses now have more options for lending solutions than ever before. 

In the coming years, here are the top trends that will play a major role in small business financing. 

Continued Enthusiasm for Crowdfunding

The 2012 JOBS Act paved the way for businesses to raise capital without extensive regulatory burdens - giving rise to crowdfunding. Crowdfunding refers to small amounts of funds from many investors drawn together to create a larger pool of capital. 

It’s a relatively seamless way for companies to raise money - with investors receiving stock, equity, or debt stakes in return. Nowadays, sites like Kickstarter and SeedInvest have made crowdfunding more accessible and efficient than ever before. 

On average, $17.2 billion is generated annually through crowdfunding efforts in North America. The global crowdfunding market is expected to grow at a CAGR of 11.2% from 2021 to 2027, reaching a total value of $25.8 billion by 2027. 

Crowdfunding is especially popular among high-growth, early stage startups who wouldn’t otherwise qualify for a traditional business loan or business line of credit

While crowdfunding can be a great way to access cash quickly, it forces entrepreneurs to give up ownership in their company. This can ultimately cause you to lose control over your business or contend with a lower valuation down the line.

The SBA’s Focus is Getting Smaller

The Small Business Admin­istra­tion (SBA) received national criticism in the spring of 2020 for granting Paycheck Protection Program (PPP) loans and other financial aid to major corporations and public companies. Unsurprisingly, small business owners, many of whom needed the relief the most, felt slighted by this move.

In 2021, it appears the SBA is making an effort to rectify its past. The SBA has expressed its commitment to supporting small business revenue and growth. Earlier this year, the latest rounds of PPP loans were directed towards the smallest of the smallest businesses as well as  businesses in historically underfunded communities. 

At the time, SBA Senior Advisor Michael Roth explained “The SBA is a frontline agency working to create an inclusive economy, focused on reaching women-owned, minority-owned, low- and moderate-income, rural, and other underserved communities in meaningful ways.”

Going forward, the SBA is likely to continue its focus on supporting smaller and smaller businesses, minority-entrepreneurs, and businesses in rural and historically underfunded areas. 

The SBA has also set its eyes on reclaiming the small loan market, which has become increasingly competitive as a result of increased lenders and online financing opportunities. 

According to Bob Coleman, an advisor to the SBA, federally-backed loans may even get smaller in value - “the future of the SBA is loans under $150,000,” he explains.

Possible Interest Rate Hikes

The Fed has kept interest rates relatively low throughout 2020 and 2021 in order to fuel post-pandemic economic recovery. This has resulted in heightened consumer demand, a hot labor market, as well as rising inflation concerns. 

The Fed is now turning towards a different approach and considering rate hikes as early as 2022. St. Louis Fed President James Bullard remarked, “we were expecting a good year, a good reopening. But this is a bigger year than we were expecting, more inflation than we were expecting.” 

The central bank official continues, “I think it’s natural that we’ve tilted a little bit more hawkish here to contain inflationary pressures.”

Business owners should also anticipate further interest rate hikes in 2023. If you’re considering financing solutions such as a business loan or business line of credit, it may be better to act now and secure a lower rate before interest rates rise. 

Minimal Regulatory Shifts

Despite an increasing amount of lending options for small businesses, it’s unlikely the industry will be hampered by tighter regulations anytime soon. The government has a tendency to perceive small businesses as more diligent than everyday consumers - especially when it comes to loans. 

This means, businesses owners will continue to be left to their own devices to research and source affordable lending options. It can help to work with a dedicated Business Financing Expert, such as the professionals at National, to help you find solutions tailored to your business’ needs. 

Online Lenders Will Continue to Offer More Options 

Banks, credit unions, and traditional financial institutions tend to have more rigid requirements for small business financing. Small businesses have to show sound personal and business credit as well as multiple years of business history - among other documentation. 

In 2019, 32% of small business applicants turned to online lenders. Online lenders are known to be more flexible and offer a wider range of small business financing solutions, including business loans, lines of credit, merchant cash advances, invoice financing, and more. 

Plus, they are typically faster and more efficient when it comes to application processing and financing. In the coming years, online lenders and other fintech companies will continue to play a critical role in providing lending solutions to small businesses. 

Get in touch with a Business Financing Expert from National to help you understand what types of financing solutions your business qualifies for. Simply compare and contrast different options until you make the selection that suits your needs best. 

The application process is fast, simple, and could result in you accessing funds in hours. Apply now! 

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Last Updated on September 30, 2021

National Business Capital helps entrepreneurs secure quick and fair financing to save time and cultivate sustainable growth.

Our stress-free online platform is designed for simplicity and speed, helping business owners go from application to approval in a matter of hours. And while we remain a leader in the Fintech industry, our clients agree it’s our personalized service and award-winning team that sets us apart.

From SBA loans to lines of credit, to equipment financing, and more, business owners can access all the different financing programs available to them in one place. Through our streamlined process, we have helped clients secure $2 billion in financing since 2007, and, more importantly, we’ve helped entrepreneurs save a tremendous amount of time and grow faster.

About the Author, Phil Fernandes

Phil serves as VP of Financing for National Business Capital. He boasts 15 years of sales experience, 10 years of managerial experience, and has been with National for over 6 years. His role at National focuses on managing and directing National’s team of Business Finance Advisors and overseeing project development. Phil is also responsible for Financial Reporting, where he prioritizes results and revenue growth. Phil is passionate about sharing his expertise and insight with small business owners, and regularly contributes articles on National’s blog.

Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advice from National Business Capital and the author. Do not rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely on this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there may be errors, omissions, or mistakes.