The small business economy is turning a corner. COVID-19 vaccinations are widespread, and local governments across the country are easing shutdown restrictions. That's a far cry from the early days of the pandemic in 2020. Small business owners were forced to halt operations or spend extra cash on social distancing measures. Many businesses didn't survive, and the ones that did, needed government aid and loans to make it.
With the economy recovering and businesses thinking about growth again, small business owners will continue to turn to banks, credit unions, the SBA and alternative lenders for cash in 2022. The good news is that early returns in 2022 show an increase in loan approvals across every category across the board, including alternative lenders, and large and small banks.
Business owners who use online and alternative lenders in 2022 can receive lower interest rates. And advances in technology may improve the lending process, with artificial intelligence and machine learning reducing loan approval wait times. Credit scores still matter, but lenders are increasingly scrutinizing other aspects of business owners' finances to ascertain their creditworthiness. Altogether, these changes should make it easier and quicker to get a small business loan in 2022.
As in 2021, the number of online and mobile lending companies is expected to grow in 2022. Since digital options provide extensive financing opportunities and faster approval, they are expected to be increasingly popular choices compared to traditional banks and credit unions.
An additional note for 2022, the SBA recently adjusted its size standards in 16 of its sectors to determine what constitutes a small business, which determines the businesses available to apply for SBA loans and federal contracts. The size adjustments mean 59,000 more businesses are now classified as small businesses and eligible for SBA financing.
Business owners considering a loan should also keep an eye on interest rates in 2022. In response to rising inflation, the Federal Reserve has aggressively hiked its benchmark interest rate. In June 2022, the central bank voted to raise interest rates by 0.75 percentage points. The consensus from Fed officials is that rates will end 2022 at around 3.4%, although this number may surprise to the upside if inflation remains high. Nobody knows for sure what will happen with rates, but small businesses can prepare by locking in loans at a fixed rate. Business owners should carefully evaluate the risks of variable rate loans that could leave them on the hook for higher payments if rates rise in the future.