How a Small Business Loan Can Help Your Business Survive a Recession Author: Madison Taylor

How a Small Business Loan Can Help Your Business Survive a Recession

Last Updated: September 17, 2020

You have worked hard to create, build, and maintain a business of your own. You want to protect all of that hard work, no matter what. Whether you think you may struggle during a recession or not, it is important to have a plan ready if and when a recession hits.

A recession can be a terrifying time for small businesses, especially when it feels like there is no end in sight. Consumer spending goes down and sometimes comes to a halt. When there’s no cash coming in, but you still have bills and financial responsibilities to pay, it might feel like the end of your business.

What can you do to protect your small business during these tough times? Taking out a small business loan can help support your financial needs to keep you on your feet during a recession. So how does business lending during a recession work?

How Small Business Lending Is Affected During a Recession

When a recession hits, small business lending can change. The Federal Reserve significantly decreases interest rates to encourage small businesses to consider taking out loans. Moving money from their savings account to loans helps boost the economy, so interest rates will rarely rise.

Banks and lenders know they are going to take a hit during this time, as some companies will need to delay payments. Because of this, the qualifications to obtain a small business loan are increased as they are hesitant to approve long term loans during times of uncertainty.

To be sure that you can get a small business loan and have that extra cash to lean on, it might be a good idea to take out a loan before a recession hits. 

Having this security can save your business when money is tight, even at the cost of higher interest rates. If you have collateral to offer your lender, this could reduce your interest rates. If you would like to learn more about what options may be available to you, we suggest speaking with a Business Financing Advisor at ROK Financial. To speak to someone today, you can apply for a small business loan here at no-cost and it will not affect your credit score.

Small Business Lending Trends

Small business lending trends are what drive a bank’s decision-making for the upcoming year. Understanding this year’s trends can also help you make informed decisions about loans and finances for your business. Here are some of the trends we see for 2020:

  • 29% of small businesses have failed due to low capital
  • 43% of small businesses applied for loans in 2019
  • 48% of small businesses have met their financial needs
  • 70% of small businesses are in debt
  • 56% of small businesses use loans and funding to improve and expand their business
  • $633,000 was the average loan amount to small businesses
  • $107,000 is the average amount for SBA loans

These trends show how important business lending during recession can be. 70% of small businesses are in debt. Having extra debt during a recession can really hurt your business. However, taking out a small business loan can help you manage your finances and keep your head above water until the cash starts coming in again.

Less than half of small businesses have met their financial needs, and this was before the Coronavirus shut down the US Economy. This shows how small businesses can struggle in a normal year, making recessions even more detrimental. 56% of small businesses have found that small business loans can truly help improve and expand their business by investing in marketing strategies and expanding their products.

How COVID-19 Impacted Business Lending

The COVID-19 pandemic has put some serious stress on small businesses, resulting in a plethora of businesses needing loans and financial support. The effects of small business loans during this recession led to the creation of the Coronavirus Aid, Relief, and Economic Security act, or CAREs Act. This act gives emergency relief and resources to small businesses. 

The CAREs Act includes the Paycheck Protection Program that prevents workers from losing their jobs. Further detail for the Paycheck Protection Program can be found later in this article. 

What Role Does The SBA Play in Business Lending

The SBA, or U.S. Small Business Administration, has announced some guidelines to support small businesses during the Coronavirus pandemic. The administration suggests that businesses test their access to capital to determine their needs for financial assistance.

Making sure your business has enough inventory to last a sustained period of time. Finding and buying supplies during this pandemic could be difficult, and prices may increase. Businesses should determine whether their workers can safely perform their duties within CDC guidelines. 

The SBA discusses the importance of marketing and communicating openly to the public and your consumers. Ensure customers that they will be protected if visiting your establishment and buying your products. For more guidelines, visit sba.gov.

Other Types of Financing During a Recession

There are other options, aside from small business loans, that can support your small business during a recession. A business line of credit is another option for financial support. 

A business line of credit allows you to borrow up to a limited amount of funds and only pay interest on the amount borrowed. You can take out funds and repay funds as needed up to your credit limit.

An Economic Injury Disaster Loan, or EIDL, is another option for financial support. If your business is losing revenue due to the coronavirus pandemic, this loan can provide you with economic relief. To learn more, check out the SBA site for more information.

Summary

It is always smart to have a backup plan to keep your business safe during a recession or any time of economic stress. Business lending during recession or another form of financial support can allow you to stay afloat while you wait for the economy to recover. Once the economy recovers, it will be easier to bounce back and get your business back to running as usual. 

About the Author, Madison Taylor

Madison Taylor is the Brand Ambassador at ROK Financial. She is responsible for raising brand awareness and business relationships with business owners across the country. Madison loves that she plays a small role in getting Business Back To Business Through Simple Business Financing and looks forward to hearing what you think about the blogs she creates!Madison has been working in the financial space for six years, and loves it! When she is not at work, you will find her at home learning a new recipe to test out on her family or going on new adventures with her friends.

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