Blog & Company News
Dec 2, 2022
Business Owners Look to Loans to Get Through Tough Times
Businesses that have survived the pandemic are now facing inflation at a 40-year high and a potential recession. More small business owners are turning to loans for working capital to cover rising operating costs, purchase equipment and invest in future growth. Now is the time to work with small businesses who need the right financing to survive and thrive during a slow economy.
Loans will become a major resource for small businesses as the economy continues to slow. Research shows that one-third of small business owners struggle or fail due to a lack of capital. Some business owners are daunted by the process of applying for a loan, not knowing exactly how different types of loans work and how they can pay them back. As a result, less than half of small businesses in the U.S. have their financing needs met. That means many small businesses could still benefit from a loan.
With a potential recession and at minimum a slowdown in the economy, small businesses will consider seeking financing to cover rising operating costs. Credit unions and smaller banks can play a large role in providing small businesses with the funding they need, especially as we enter the new year.
Funds can be used for a wide range of business needs, including:
- Purchase or refinance commercial real estate
- Open, expand or acquire a business
- Access working capital
- Purchase equipment
- Make leasehold improvements
- Refinance existing business debt
Lending represents the solution for many businesses struggling to grow. We’ve seen it before during tough economic times. More than 40% of small businesses applied for a loan in 2020. That number could grow in 2023 as economic conditions are forecast to deteriorate.
There are several advantages for business owners when it comes to small business loans. These include convenience when seeking financing from financial institutions like credit unions, access to large amounts of capital, lower interest rates than credit cards, and different types of loans for different needs and industries.
In general, the average small business loan is around $600,000. However, not all big banks are willing to provide financing to small businesses in a tough economy. Loan approval rates for small businesses applying to large banks are about 14%.
It makes sense that many small business owners will turn to their local credit union for financing. Credit unions enjoy helping small business members grow, which strengthens relationships and benefits both parties.
Moreover, small business lending is important to the overall economy. It is critical for growth and to keep businesses (both new and existing) able to stand out in an increasingly competitive market.
Credit unions can play a major role in ensuring the success of their business members by providing them with the financing they need to continue to grow and thrive.