2012 Small Business Lending Outlook

If your company is even guardedly in a position to start thinking about expansion, fortunate enough to be enjoying healthy growth and strong prospects despite the sluggish economy, there is hope. We have good news. Borrowing in 2012 will become easier. This year will be a good time to borrow.

Interest rates can’t get any better in the coming years. Banks will be eager to lend, now that the majority have weathered the financial crisis of 2008-2009. They had previously cut back on lending to bolster their reserves, or balance sheets to offset risky mortgage loans. Now they can look to the future.

One reason that borrowing in 2012 will be easier is the new federal regulations. Banks can no longer afford the luxury of high mortgage rates as a revenue source, with all the risks associated with having a mortgage portfolio; therefore, banks must diversify to acquire additional revenue.

For banks to find additional sources of profit, they must look to lending to small businesses. They must increase their portfolio of loans to companies.

Another big factor in determining where banks will be heading is the decline in late payments and bad debt, bad loans. When this number goes down, banks are more willing to say yes. Of course, banks will start lending to businesses with excellent credit and cash flow first, before they start lending to sub-prime business owners.

We saw a huge increase in subprime business lending in 2011. We saw new funds becoming available at the end of the year that were available to companies without stellar credit. This is a good sign that banks are opening up to customers with less than perfect credit scores.

For start-ups…there is still a rough road ahead. New businesses often depend on borrowing against home equity, but owing to the dismal housing prices, using one’s home equity will not help on the road to entrepreneurship.

We anticipate business lending will be close to a pre-financial-crisis peak within the next 2 year. As we see more subprime lending, which is an indicator that banks are starting to loosen up, we can determine the volume of loans based on the economic outlook.

Though this is good news for the U.S. economy, this doesn’t quit solve our employment problem. This doesn’t create jobs. It just allows companies to stay in business so they can slowly edge into expansion mode.