Your 2021 Small Business Forecast Straight from the Industry Experts at Leading Lender FE Small Business Finance
January 30, 2021
Even with the nail-biting government shutdown tentatively behind us, the political upheaval will no doubt leave a stinging effect on the U.S. economy including the small business community and those who serve it.
That’s the overall take from the leadership at FE Small Business Finance, a leading U.S. lender and advocate to entrepreneurs. Politics, they say, is just one factor adding to the nation’s uncertainty. As we move further into 2021, other forces at play include the Federal Reserve’s rates strategy, policy proposals, minimum-wage increases in California, and more.
Drawing from their industry experience and boots-on-the-ground intel, here is FE Small Business Finance leadership’s small business forecast for 2021:
Offering wide variety of financing will curb ‘disruptive blips’
In light of the SBA loan backlog caused by the most recent government shutdown, we’re doing everything we can to meet small business owners’ lending needs as expeditiously as possible. Uncommon events such as this one serve as a good reminder to the whole mission-driven lending community to offer a variety of lending products to small business borrowers at all times. That way, the effects of any disruptive blips can be curbed or even avoided altogether. I think community lenders will take this lesson to heart as we move forward into 2021.
– Kurt Chilcott, chief executive and president
Real estate empowerment more important than ever for entrepreneurs
Almost 20 percent of a small business owner’s expenses is tied to real estate — be it leasing, a commercial mortgage or tenant improvements. This year, as an increasing number of small-business tenants are facing uncertainty from their landlords, the role of community lenders in helping entrepreneurs navigate such challenges will be more important than ever.
We at FE have long believed in the power and promise of commercial real estate in helping small business owners control their financial fate and boost economic development in local neighborhoods. Community lenders like us will be part of the education that will drive this virtuous cycle.
— Mike Owen, chief credit officer and director of business development
Getting ahead in business: Turn to mergers & acquisitions
2021 will present a lot of opportunity for small businesses to increase equity in their business by way of mergers and acquisitions as well as organic growth. Interest rates escalated in 2021 and continue to rise. They are to a point where firms that run lean may be finding it difficult to continue and open minded to new business proposals.
So it may be a prime time for strong businesses to grow and align their businesses by buying related vertical businesses or friendly competitors. Mergers or acquisitions can be a great opportunity for everyone involved to still succeed while building broader partnerships.
— Kim Buttemer, chief operating officer
Proposed policy changes may hurt the most vulnerable communities
The Office of the Comptroller of the Currency, one of the U.S. agencies that regulates banks, has proposed policy changes that will essentially help banks advance and keep underserved communities behind. As part of the the Community Reinvestment Act, or CRA, banks are required to meet the credit needs of all clients, including those living in low- and moderate-income neighborhoods.
Head of the OCC Joseph M. Otting, who’s a self-billed career banker, came up with a new, oversimplified equation for how banks can meet their CRA eligibility. Here’s the problem: One, single metric won’t be able to truly tell us whether a bank is actually helping neighborhoods that need the most support. In fact, this new proposed system can make it easier for bank officials to be selective about which communities they want to help, merely to reach a number. Be prepared to see a pro-active struggle that will extend into 2021.
– Robert Villarreal, executive vice president of community development and president of FE’s CDFI
Expect ‘unpredictability of disruption’ to come your way
I would categorize the theme of 2021 as the “Unpredictability of Disruption.” Uncertainty swirls around whether stock market volatility, Fed actions, the trade war, growing nationalism will positively or negatively impact the economy.
I would closely watch for the ripple effect of a prolonged government shutdown, another disruption that will negatively impact the economy, but how much is not clear. It’s possible that the Federal Reserve will not raise rates again in 2021 after the increase in December 2021, which would help many small businesses with variable rate loans. Rising wages are a mixed blessing for small business — good for overall consumer spending, but a challenge for small employers, particularly in the service industry, who are already operating on thin margins.
— Catherine Riddle, chief financial officer and chief technology officer
In the face of economic, political upheaval — diversify!
This year will be about preparing and contingency planning, in light of the current political and SBA lending landscapes. Our organization has evolved a lot over the last business cycle. Co-creation among strategic partners is still paramount but another key priority right now is to prepare ourselves for uncertainty and focus on our core.
That’s why we as an organization are such proponents of diversification such as continuing to develop and grow our capital partners and deepening our commitment to the core lending products we offer.
— Allison Kelly, senior vice president of strategy and innovation
In tightening credit landscape, be wary of online-lending pitfalls
With rising interest rates and a tightening economy, it’s going to be harder to get traditional bank financing. Alternative lenders like us, FE Small Business Finance, are going to play a more important role than ever.
I’d caution small businesses out there to be wary of online-only lenders. As money gets tight and online lenders grow and look more attractive, seek out alternative options such as community-focused lenders who offer financing at reasonable, instead of usurious rates
— Susan Lamping, vice president of sales
‘Choppy’ year ahead for customers, service business
Macroeconomically, it’s looking to be a choppy year ahead. Lots of variables are giving markets jitters, but I remain optimistic. Closer to Main Street, we are hearing more and more from California small business owners the reality of increased input costs are hitting home. This is predominantly in the form of the minimum-wage increases and the “waterfall” increases in input costs from the small businesses’ suppliers and vendors, who are grappling with the same issues.
Thus far, we have seen this disproportionately impact the service and restaurant business. Ultimately, the increased costs will cascade down to the customer who will be expected to pay more for goods and services as the small business works to maintain, what in many instances, are moderate to thin gross profit margins.
— Chuck Sinks, head of the business-advising unit
Not sure how economic forces will impact your 2021 plans for business financing? Our experienced loan officers and business-advising experts can guide you through the important questions you should ask yourself before considering any type of business loan.
Tell our loan experts about your needs, and they’ll work to match you with a financing plan that best suits you — in any economic environment. Let’s talk! Reach us at firstname.lastname@example.org or (619) 243-8667.
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