Bank credit is tight, but small business capital needs are rising. Is now the time for brokers and funders to fill the working capital lending void?
The Numbers
According to the Fed, small business loan demand fell sharply in 2023 to the 2nd worst demand level ever. Even after a strong recovery in the fourth quarter, the current demand level is still at the 7th worst measure recorded since 1992.
In survey work by Secured Research of over 5000 small businesses, 82% report less loan demand in 2023 with the primary reasons being:
- Higher rates
- Tighter bank credit
- Concerns over a slowing economy
Don’t Call It A Comeback
While loan demand is still low compared to average measures of the last 30 years, the rate of increase in small business lending demand in the fourth quarter of 2023 was the sharpest quarter-over-quarter increase ever recorded.
Most bank lending remains tight, and demand is coming back. Do brokers and funders have a chance to surge forward in this climate? Secured Research pulsed over 300 brokers in January and found the following insights:
- 67% reported application volume was rising
- 82% reported less concern about rates than compared to the first half of 2023
- 77% reported renewed optimism among smaller companies
- 80% report the largest area of capital need is working capital
The banks will eventually get back on their feet, but “higher for longer” interest rates and the impact that will likely have to commercial real estate portfolios grinding to resolution will have them conservative for some time.
Brokers and their funding sources may hold the key to getting working capital to work for small businesses right now.
