Small Business Administration (SBA) loans are among the most popular borrowing methods for small business owners around the country. Depending on the state of the economy, it can either be easier or more difficult to secure one of these loans, particularly as we see trends ebbing and flowing post-pandemic, interest rates rising, and the Federal Reserve hiking their rates.
Raising Lending Standards
Earlier this year, a Federal Reserve report stated that banks have been raising their lending standards for loans, including requiring higher credit scores, charging higher interest rates, and/or demanding more collateral. Nearly half of all banks reported that they were tightening credit.
For business owners, this means that SBA loans will be harder to access and will reduce the availability of credit. It could also slow the economy and cause a mild recession due to the pullback in lending. However, this also means that the Federal Reserve wouldn’t have to charge interest rates as high which would help reduce inflation in the economy.
New SBA Rule Changes
On the flip side of tightening credit, the SBA also made rule changes to their loan programs earlier this year that may make it easier for small businesses to qualify for an SBA loan. Firstly, the SBA allows a limited number of alternate lending institutions called Small Business Lending Companies (SBLCs) which are different than a bank or credit union. In the past, the cap on SBLCs was 14, but the SBA has removed this cap and allowed for three more licenses. It is estimated that one of these new licensed SBLCs could provide 425 loans over the next four years.
Additionally, the SBA has reduced their criteria for credit down to three things: credit score or credit history, cash flow of the business, and collateral. This means that more small businesses may be able to receive an SBA loan due to these guidelines being purely objective and not up for interpretation by the lender.
These rule changes are intended to provide access to capital for small businesses that typically get denied credit.
Need a Small Business Loan?
At Republic Bank, we provide express business loans up to $100,000 in less than 24 hours, and traditional loans and lines of credit up to $1.5 million. As a well-capitalized, independent, and locally owned bank, you can expect holistic, customized solutions and a partnership that exists well beyond the closing of your loan. We also provide commercial and real estate loan options. Interested in getting started? Call our team members at 800-526-9127 today!