Recession Recovery: Small Business Loans Are On The Rise
Small business lending has made tremendous strides since the Great Recession that hit America in 2008/2009. The housing market collapsed, unemployment rates soared and lenders imposed tightened requirements to qualify for a small business loan. Small businesses were hit hard when they needed cash more than ever, and many small businesses had to close their doors for good. Five years later, we are still feeling the effects of the recession, but we are also seeing small business loans at an all-time high.
Things have changed drastically in the last 4-5 years when it comes to small business lending. For the first time since the recession, more small businesses are being approved for loans. Banks are beginning to loosen the restrictions and put money back into small businesses. Historically, SBA backed loans are the most widely used method of funding a small business transaction under five million dollars. The number of lenders that have entered the market has increased greatly and that will prove to be beneficial for buyers, sellers and the economy alike.
The Right Time to Buy
For buyers, the recent influx of new lenders in the financial industry allows for better interest rates and packaged deals that will further support their business. Prior to the recession, interest rates were through the roof and lenders were very uniform on their lending packages. Since the downturn, interest rates are lower than they have ever been. A typical funding plan that we see often allows a Buyer to combine closing costs, fees and working capital into the total project and finance the transaction over 10 years with enticing interest rates. With a 10 year financing plan, buyers have a lower payment which in turn frees up their cash flow. Buyers also benefit from post-recession development through transactions that only require them to inject between 10-25% of the purchase price, while the Lenders finance all of the additional costs, including working capital, SBA fees, closing costs.
A Seller’s Market
Sellers can also benefit from our recovering economy. During the recession, thousands of Americans lost their jobs and some are still struggling to re-enter corporate America. Those that have not been able to do so sometimes look into buying a business. The high unemployment make for a very large buyer pool, which then maximize values. This puts the seller in a position of power and gives them more options when selling their business. Due to lowered interest rates, buyers can purchase more expensive businesses with the help of loans, thus giving the seller more qualified buyers to choose from.
Growth in the Charlotte Metro
The Charlotte Marketplace will also continue to prosper as a result of the increased amount of Lenders. Lenders only make money when they make loans which means more loans are on the horizon. With more businesses being funded, more dollars are being reinvested into the Charlotte economy, creating a cycle of wealth among buyers, sellers and lenders. The Charlotte population is expected to double in size within the next 24 years and many of these people will be entering the market as business owners. As Charlotte grows, the market will grow and this bodes well for local economies, lending, small business owners, and the future of entrepreneurs.
Jay Offerdahl, Vice President of Viking Mergers & Acquisitions