What is the Outlook for Small-Business Lending in 2018

by Debi Enders

With a new year just around the corner, now is a good time to see what’s on the small-business lending horizon.

Overall, the 2018 small-business loan forecast includes mostly good news. As you plan major purchases and estimate your borrowing costs, here are a few trends to keep in mind:

Expect a gradual increase in borrowing costs. In June, the Federal Reserve raised short-term interest rates by a quarter-point — that’s the third increase since last December. Even with these increases, the Fed’s key interest rate is still hovering between 1% and 1.25%, which is very low compared with past decades.

For 2018, the Fed projects its benchmark rate will rise to 2.1%. Because lenders base their rates on the Fed’s rate, this means borrowing costs for small-business owners could gradually increase in 2018. What does this mean for you? It means you might seek financing sooner rather than later to lock in the lower rates before borrowing costs go up.

Move quickly if you want to refinance. If you have a loan on a large-ticket item and are paying more than 4% interest, the time to look at refinancing is now. While there is still time to lower your interest rate, rates are creeping up and the refinancing window is closing.

One possible exception is vehicle refinancing. Interest rates on some auto loans have gone down. Still, buying new may save you in interest costs long-term compared with refinancing.

You may find it easier to qualify. Banks are approving a higher percentage of small-business loans than ever, according to the Biz2Credit Small Business Lending Index. Because higher interest rates result in a slightly larger profit margin on small-business loans, lenders may be more willing to lend to qualified candidates. The economy is also stronger, which boosts confidence.

If your business, like the economy, is on firm footing and your prospects for growth are good, in other words, the best time to apply for a loan may be now.

Debi Enders (debi.enders@commercebank.com) is vice president, small business banking at Commerce Bank.