How the Economy Affects Small Business Loans

If you’re new to the world of small businesses, you may not know how the economy can affect small business loans. However, keeping an eye on the health of the economy will benefit you in making business decisions. Learn more about the economy’s impact on small businesses and how those fluctuations can apply directly to you.

Supply and Demand

The US economy fluctuates based on supply and demand, just like many businesses. When the economy is booming and business owners see financial success, the demand for loans is much lower. But when the economy takes a downturn and more people become strapped for cash, the demand for loans rises as business owners try to make ends meet.

Competing for Loans

Many entities, whether individuals, businesses, or government bodies, need funds to start or run their businesses, so they compete with one another for loans. Banks and other lenders are very selective about who gets a loan! Plenty of them impose minimums and maximums for loans to remain within legal limits and ensure that giving the loans is economically viable for them.

Interest Rates

Every time the economy goes through changes, you probably hear lots of chatter about similarly changing interest rates. For most types of loans, including small business loans, interest rates go up when the economy is in decent shape. The Federal Reserve imposes higher rates to discourage too much unnecessary borrowing and spending. The idea is to try to keep the market as stable as possible during times of economic expansion.

If you would like to inject some cash flow into your business without relying on a traditional loan, try utilizing a 401(k) rollover for business startups using your 401(k) retirement funds. You don’t have to worry about paying it back with interest because the money is already yours.

While the economy affects small business loans in various ways, you have plenty of funding options available that don’t put you at the mercy of those fluctuations. Use Pango Financial’s funding solutions tool to learn about the options at your disposal.