The rate at which small businesses are now being approved for credit is on the rise, thanks in large part to improving sentiment about the prospects for healthier borrowing among banking professionals.
In all, 62 percent of bank risk managers say that their willingness to supply credit to small businesses over the next six months will satisfy demand, and nearly nine out of 10 said approval rates would either hold steady or increase during that time, according to the latest quarterly poll of these professionals by the credit scoring firm FICO.
This may largely be due to improving economic conditions, and the belief shared by nearly 80 percent of those polled that delinquency and default on small business loans would not go up, or even decline, in the next half of a year, the report said. The new beliefs also stand as a stark change from recent trends, as FDIC data shows demand for small business credit has been rather limited in the last few years.
"This quarter's survey was positive overall but the results for small business lending were particularly striking," said. Dr. Andrew Jennings, FICO's chief analytics officer and the head of FICO Labs. "In the past, the banking professionals we survey haven't been as optimistic about credit for small businesses as they have been for other types of lending. The upbeat sentiment makes me think it's possible that we'll see small businesses picking up the pace of investing and hiring in the months ahead."
Further, it's also believed that the increased availability of credit will likewise be met with an uptick in demand for it, as more than 70 percent feel they will receive more applications, the report said. To that end, more than half of respondents expect the total amount of credit granted to small businesses to rise in the coming six months, and only one in every 10 surveyed thought that amount would decline.
Of course, independent companies that are looking to expand hiring or other operations may want to keep in mind that they will likely also have to face higher costs in the course of their daily business. For instance, general liability insurance and workers' compensation insurance premiums are expected to continue rising, which may put a greater strain on the ability of any company to expand. As a consequence, many owners may want to carefully consider whatever moves they plan to make so that they can best assure their companies' success going forward.