The small business credit landscape in 2022

Supply chain delays, worker shortages and rising wages make it more costly for small business owners to capitalize on pent-up pandemic demand – especially as the holiday season approaches.

But that doesn’t mean they have to lose what should be a strong holiday season and beyond. Financing options abound, as banks and non-bank institutions continue to open their coffers to small businesses across the country.

Over the past several months, loan approvals have been slowly increasing in all types of lenders except credit unions. According to the Biz2Credit Small Business Lending Index, alternative lenders dominated the pack in October, approving 25.6% of borrowers. This is up from 25.4% in September. The big banks approved 14.1% of loans, compared to 14%. Meanwhile, small banks approved 19.7% of loan applications, an increase of 0.2%.

“Loans are coming back, more from alternative sources, but also small banks are increasing their lending again,” Rohit Arora, CEO of Biz2Credit, told

In addition to a willingness to lend, many are relaxing their standards. “Since companies got $ 1.3 billion in canceled loans [during the pandemic], lenders can afford to be less stringent, ”Arora said.

Many companies’ sales are up this year, he said, and their debt is much lower than in 2019, which is also useful.

Did you know? When we set out to find the best small business loan providers, we focused a lot on alternative lenders. We know they are more willing to work with all kinds of small businesses, require less paperwork, and offer quick financing. But there’s a catch: the cost of borrowing is usually higher.

SBA sets record for non-pandemic lending volume

It’s not just small banks and alternative lenders that are picking up the pace of lending. The US Small Business Administration, which has proven to be a lifeline during the pandemic, is also setting lending records. Earlier this month, the SBA announced that it was supporting $ 4.8 billion in small business financing in fiscal 2021 through more than 61,000 traditional loans. That does not include the $ 1 trillion and more in COVID-19 relief the SBA has provided since the start of the pandemic. The lending volume of its 504 loan program has increased by 41% this year.

The SBA expects another busy year in 2022, with much of the volume pulled by lenders looking to reduce their exposure. “Concerns about the pandemic in the economy add some risk,” said Alan Haut, district director of the SBA’s office in North Dakota. “Lenders, banks, and credit unions generally don’t like a lot of risk. An SBA guarantee helps reduce that in an uncertain environment.”

The stigma among business owners is fading

The willingness of lenders to provide various types of small business loans is increasing as the stigma associated with borrowing disappears. In a recent PayPal survey44% of small business owner respondents said they were now more willing to apply for a small business loan than before the pandemic, and 1 in 3 said they plan to seek financing next year.

“The pandemic has created a lot of stress and small businesses have had to reinvent themselves,” said Bernardo Martinez, vice president of global merchant loans at PayPal. “They’re embracing their new roles online and really trying to invest in these areas. They need capital that they maybe didn’t need in the past.”

Among business owners surveyed by PayPal, 1 in 5 said they need money to boost their email and social media marketing, while another 20% want to grow. During the holiday season, corporate borrowers provide loans for marketing and advertising, strengthen their online presence, and sell to new markets.

adviceAdvice: It may be too late to stock up for the holidays, given the chaos in the supply chain, but small business owners should already be preparing for 2022. Valentine’s Day and Easter are fast approaching not.

Where can small businesses get financing?

Now is a good time to become a small business owner if you are in need of financing. There are different options for securing the capital. With interest rates hovering at pandemic lows, borrowing is also cheaper.

Take the banks to start. The big ones don’t lend, but the little ones do. “Community banks account for 43% of all business loans, over 40% of farm loans and over a third of commercial real estate loans,” said Orvin Kimbrough, president and CEO of Midwest BankCentre.

These local banks maintain relationships with their small business clients, which facilitates the underwriting process. However, getting approved for a bank loan can be difficult. It requires a lot of paperwork, which is why 16% of business owners PayPal surveyed said they had not applied for a business loan.

Small business owners, however, have choices outside of bank loans. They can borrow against their current and future sales through working capital loans and cash advances to traders. These loans generally require much less paperwork and the financing can be quick.

for your informationFOR YOUR INFORMATION: In our review of Rapid Finance, we found that it can transfer money to a borrower’s bank account in as little as 24 hours after approval. You can find out more about lenders who provide money fast in our SBG Funding review and our Balboa Capital review.

Short-term loans and equipment finance are other popular options with banks and alternative lenders. Short-term loans – which are often used for cash flow, inventory, or promotions that deliver direct results – have terms of no more than 18 months. The subscription is less painful and the financing is fast. Our review of Fora Financial found that its maximum term was 15 months. Business lines of credit and microloans are other options for small business owners.

Final resultAt the end of the line : Small business owners have a lot of financing options. If you have the time for the longer process, a bank loan is a good choice. If you need quick financing, consider working capital loans and cash advances to traders.

Money is flowing again to small business owners, but that doesn’t mean every loan is right for you. Before choosing a loan, determine why you need the money and for how long. If it’s to buy more inventory before the holidays, a working capital loan or a cash advance to the merchant may be a good option. If you have to buy expensive machines, equipment financing is a better choice.

“What are the funds used for? Are you just filling a gap, or is it actually to fuel growth? said Hal Shelton, SCORE mentor and angel investor. “There must be an advantage. How much will you get, will you be able to pay it back, and will you have anything left? “

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