Major financial events can bring about tremendous changes in small business. What impact has COVID-19 had on perceptions of small business loans?
Businesses of all sizes are dealing with economic problems such as supply chain concerns, labor shortages, and rising wages while they navigate through ongoing government mitigation efforts such as vaccine and mask mandates. For small and medium-sized businesses around the World, it has been like catastrophic “whack-a-mole.” As soon as one issue is resolved, a new one emerges, slowing the recovery for small businesses around the world, and bringing the global recovery to a grinding halt. What impact has COVID-19 had on perceptions of small business had on small business loans?
While governments around the world responded to COVID-19 by throwing money at businesses of all sizes, many small businesses that needed aid, were not able to get it. As a result, the frequently lack the wherewithal to cushion the blow of these compounding challenges.
Small-business owners wear many hats: they must manage their business, inventory, plan for growth, acquire new customers, and of course manage their cash flow. What addresses all these issues? Capital. Access to capital helps small businesses recover quicker, which saves communities, and aids the global recovery.
Small business response to adverse events
Small business, if anything is robust with entrepreneurs pretty much doing whatever is required to ensure their survival.
According to a 2017 report by the Consumer Financial Protection Bureau, the small-business financing industry has changed dramatically since the 2008 financial crisis. Following the Pandemic in early 2020, credit was much scarcer, forcing governments to intervene and implement schemes like the Paycheck Protection Program in the United States. Such programs have prevented millions of small businesses from going bankrupt. These programs made cash available to many small businesses, including some who had never taken out a loan before and were now able to reap the benefits of a small-business loan.
Changing perceptions of small business loans
The accessibility of emergency funding appears to have changed small-business owners’ perceptions of loans and to the possibility of taking on debt in the future. PayPal commissioned Wakefield Research to conduct a study of 1,000 small-business owners immediately before Labor Day 2021. Some of the results were surprising, including:
- Seventy percent of small-business owners feel that the pandemic has dispelled the myth that loans are only for suffering enterprises.
- More than one-third of small-business owners anticipate applying for loans in the coming year, with 44 percent more ready to do so today than before the outbreak.
- Lenders are more amenable to small-business applications, according to 37% of small-business owners
- Respondents said they would use funds to improve their business this holiday season, with 38 percent saying they would increase marketing and advertising.
- Spending on marketing and advertising would be distributed as follows: online advertising or social media (29 percent), improving their online presence (33 percent), and finding new customers through different marketplaces (22 percent).
In summary: small-business owners require capital, have a strategy for obtaining it, and want to utilize it to expand their operations. Additionally, the challenge of securing financing persists, as does bankers’ apprehensions about lending to small businesses.
Additional challenges for small business
Compiling the documentation for a traditional small-business loan can take hours or days, and it might take even longer for a lender to make a decision and distribute the funds. In the current economic climate, waiting 60 days for a decision may be too long to have an influence on the business, its owner, and its employees. While certain government grants may save time, authorities still recommend submitting your application at least 21 days ahead of time.
Aside from the time it takes to apply for and receive a loan, the poll discovered several other reasons why small-business owners had not applied for a loan in the last 18 months. Additional findings include:
- Twenty-seven percent of respondents thought they wouldn’t be accepted
- Eighteen percent of those who are less likely to take out a loan today than before the epidemic said they’re holding off because Covid-19’s effects have made their financial situation less appealing to lenders.
There is also concern about how being turned down would affect their future, with nearly a quarter (24%) believing it will affect how other lenders regard them, and 21% disappointed that the rejection will appear on their credit reports. Finally, 26% of those polled stated they would be embarrassed if their friends and relatives learned they had applied for a loan.
Strategies to overcome small business lending obstacles
In order to drive the global economy, the lending community — both governments and financial institutions — must collaborate, modernize, and innovate. More data from governments, for example, can assist lenders better determine the health of applicants.
Alternative lenders are designed with the customer in mind and data at their core, allowing for quicker approvals and funding. Small firms are aware of this. According to the survey, 80 percent of respondents felt alternative lenders, such as fintechs and payment processors, are a good fit for small businesses.
Small businesses want assistance to overcome the obstacles they are currently facing as the holiday shopping season draws to a close, as well as the ones that may arise in 2022 and beyond. If the small-business lending industry is to play a crucial role in assisting this community’s recovery and the broader global economic recovery, it must adapt and modernize.
Zip Capital Group is a customer-oriented alternative lender to small and medium-sized businesses. We provide working capital financing, merchant cash advances, in a matter of days, and can help you get an SBA small business loan. Contact us or call us today at (800) 795-3919 to speak with a small business specialist today.