For small business owners, the start of a new year signifies an opportunity to make a fresh start and finally resolve old challenges that have lingered on their balance sheet from the last 12 months. The transition between years is often when our credit officers at Credibly see the highest concentration of requests from companies looking to close the books on the previous year and get a head start on tackling the new one.
The initial days of 2020 have revealed a similar influx as small businesses attempt to carry their momentum from 2019 into the new year. Surveys from the National Federation of Independent Business (NFIB), to the likes of CNBC and Bank of America reveal that owners have generally expanded through last year and are overall optimistic about the strength and trajectory of their businesses.
Nevertheless, there remains a handful of uncertainties still hanging over the year that promise to make 2020 exciting for the small business world. What follows is a brief summary of the five biggest themes or trends we at Credibly see shaping the business and financial world over the next 12 months.
Low Rates Persist
Every indication from the central bank and the economy at large suggests that interest rates will likely remain stable throughout the year. The Federal Reserve has said as much in its most recent meetings.
Although that may not be as great of news as the rate cuts that peppered 2019, it is the best scenario that businesses could hope for given that prevailing borrowing rates remain near historical lows. Any further action from the Fed would either send pessimistic signals about the health of the U.S. economy or else push up borrowing rates.
SOFR Replaces LIBOR
Speaking of borrowing rates, one of the most substantial sea changes that will begin in 2020 is the migration from the long-standing London Interbank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR) as the primary calculation for lending. The reason for the switch is due to LIBOR’s history of manipulation at the hands of just a few international financial institutions.
Although LIBOR will remain the primary gauge for lending until December 31, 2021, U.S. lenders are already preparing to make the transition. Borrowers with existing loan contracts that extend beyond 2021 should review them closely to see whether there are interest-rate provisions that account for a change in interest rate calculations.
Capital Availability Remains High
As for the actual availability of capital, small businesses likely won’t find it difficult to access the funds they need.
A recent Federal Reserve survey of traditional financial institutions shows that their commercial and industrial (C&I) loan portfolios have started shrinking in the tail end of 2019. While this is in part due to weakening spending among larger companies, 38.1% cited other banks and non-traditional lenders as a source of concern for their C&I portfolios.
The Trade War Stifles Spending
Of course, that drop in spending at the top of the food chain shouldn’t be ignored. Quarterly earnings for S&P 500 companies started showing some wear in 2019, and business spending and investment have been a persistent weak point in the overall economy.
Much of this can be attributed to the ongoing uncertainty surrounding global trade. While big business is by no means in dire financial straits, they are preparing for continued drama in the now 18-month U.S. trade war saga. Despite some small measure of progress, President Donald Trump has already stated the conflict could likely extend beyond the 2020 election.
Labor Gets A Raise
Finally, 2020 will see labor start to get a larger piece of the economic pie. For starters, a number of states including Washington, New York, Colorado and Maine have already initiated programs to buoy the minimum wage for workers to $12-$15 within the next few years, and many more are simply bringing their minimums up to reflect current levels of inflation.
However, beyond government intervention, wages are already beginning to climb for workers as a tight labor market has finally prompted higher prices for hourly and salaried workers. While there is no guarantee these wage trends will persist, the persistently tight labor will certainly encourage competitive wage growth among businesses seeking new talent.
No Time Like The Present To Plan For The Future
While these trends might obscure how the coming 12 months will play out on the balance sheets of small businesses, they shouldn’t prevent your business from expanding its operations or investing in the future.
Whatever 2020 may hold, we at Credibly will be here to provide businesses of all sizes the customized financing they need to make each year better than the last.
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