That’s what small-business owners can look forward to in 2016 — more online small-business loans, more women-owned businesses and more loan dollars guaranteed by the U.S. Small Business Administration. Plus, entrepreneurs will use more business credit cards to make purchases for their companies.
As 2015 winds down, NerdWallet believes 2016 will be a big year for small businesses, especially when it comes to financing and the upcoming presidential election.
“Small-business owners, who fuel the U.S. economy, deserve more and better access to financing and other resources to help them thrive,” NerdWallet small-business expert Cindy Yang says.
NerdWallet analyzed third-party data and tapped our team of small-business gurus to craft five predictions about what’s in store for 2016.
What to expect in 2016 for small-business loans and more
- Entrepreneurs will go online more for small-business loans.
- Online small-business loans account for 2% of all such loans today. That number is expected to rise to 16% by 2020.
- More women will become small-business owners.
- 43% of small businesses will be owned by women in 2016, and 50% by 2020, assuming the current growth rate of women-owned businesses continues. That’s up from 36% in 2012.
- Growing industries for women entrepreneurs include agriculture, forestry, fishing and hunting; accommodation and food services; and manufacturing.
- SBA loan amounts will continue to increase.
- The average SBA loan size increased 82% from 2007 to 2015. The SBA 7(a) program — the organization’s most popular loan — reached an all-time high in the 2015 fiscal year, with 63,000 loans totaling $23.6 billion.
- SmartBiz, an online lender that originates SBA loans, processed about $1.7 billion in SBA loan applications in 2015, up from $440 million in 2014.
- The 2016 presidential election will affect small-business issues.
- The minimum wage, tax reform and health care are the top three issues at stake for small-business owners.
- Small-business owners will use more business credit cards.
- The total number of business credit cards in use from the top three issuers — JPMorgan Chase, Bank of America and Capital One — grew from 9.9 million to 10.1 million between 2010 and 2015.
NerdWallet small-business predictions 2016
Entrepreneurs will skip the bank and go online more for small-business loans.
Entrepreneurs don’t have to walk into a bank anymore to get a small-business loan. Increasingly, they can find the financing they need online in a fraction of the time. As bank lending continues to decrease for small-business loans, online lending is increasing, according to data in a 2014 Harvard Business School working paper.
Today, online small-business loans from lenders including OnDeck, Lending Club, Funding Circle, Dealstruck and SmartBiz account for about 2% of all small-business loans. But they are expected to comprise 16% of the total small-business loan volume by 2020, according to a 2015 report by Morgan Stanley.
Online lenders offer middle-of-the-road options for borrowers who fail to qualify for a traditional bank loan but don’t want to pay the high cost of a merchant cash advance. For a merchant cash advance, a non-bank company advances money to a business upfront, and the business pays it back daily based on a percentage of its credit card sales. Banks typically charge less than a 10% annual percentage rate, while merchant cash advance companies can charge as much as 200% APR. Online lenders charge anywhere from 7% to 113% APR.
“With online lending expanding, Main Street small businesses have more ways than ever to access the capital they need to grow,” Yang says. “But it’s crucial that small-business owners identify the type of financing that’s best for their business.”
Business owners can compare a range of online financing options — including term loans, lines of credit and accounts receivable financing — on NerdWallet’s small-business loans page. The comparisons are based on factors including APR, loan size and what it takes to qualify.
More women will become small-business owners.
Entrepreneurship still has a gender gap, although it has been slowly shrinking — 36% of small-business owners were women in 2012, up from 29% in 2007, according to the 2007 and 2012 U.S. Census Bureau Survey of Business Owners. NerdWallet expects this trend to continue, especially as more small-business loans for women become available.
“As more women become business owners, it’s becoming necessary that there be more small-business funding options for women,” Yang says. “Online lending is making that possible.”
Assuming the number of women-owned businesses grows at the same rate it did from 2007 to 2012, 43% of all businesses will be owned by women in 2016, and 50% of all businesses by 2020, according to a NerdWallet analysis of the census data.
Every industry category had an increased proportion of women entrepreneurs from 2007 to 2012, including some that may surprise, given their male-dominated roots. The industries with the largest increase of women business owners included agriculture, forestry, fishing and hunting (a 40.5% increase); accommodation and food services (29.8% higher); and manufacturing (29.3%).
SBA loan amounts will continue to increase.
SBA loans are among the least expensive small-business loans available, with APRs in the single digits. As online lending has increased, the SBA has lent more small-business dollars. The average SBA loan size increased 82% from 2007 to 2015, although the total number of SBA loans decreased by 34% in that time. The SBA 7(a) program — the organization’s most popular loan — reached an all-time high in fiscal 2015, with 63,000 loans totaling $23.6 billion.
The massive increase in average SBA loan amounts is partly due to online lending, Yang says.
According to Judy Balint, chief marketing officer for SmartBiz, which originates SBA loans through its online platform, borrowers applied for about $1.7 billion in SmartBiz loans in 2015. That’s up from $440 million in 2014.
“The technology that enables small businesses to get short-term loans quickly and conveniently online is also allowing them to get longer-term, low-cost financing much faster through lenders like SmartBiz,” Yang notes.
The 2016 presidential election will affect small businesses.
Regardless of their politics, small-business owners will be impacted by the outcome of the 2016 presidential election. The minimum wage, taxes and health care are the top issues affecting small-business owners this election. The chart below summarizes the top candidates’ stances on these issues.
|Minimum wage||Taxes||Health care|
|Hillary Clinton (D)||Wants to raise the federal minimum wage to $12/hour.||Wants to simplify tax filing and offer tax relief for small businesses.||Supports the Affordable Care Act.|
|Bernie Sanders (D)||Wants to raise the federal minimum wage to $15/hour by 2020.||Wants to increase payroll taxes to finance more generous family leave policies.||Wants to expand Medicare to all Americans.|
|Donald Trump (R)||Opposes minimum wage increases.||Wants to simplify the tax code and offer tax relief for the middle class.||Wants to repeal the Affordable Care Act.|
|Ted Cruz (R)||Opposes minimum wage increases.||Wants to abolish the Internal Revenue Service and replace it with a flat tax.||Wants to repeal the Affordable Care Act.|
|Marco Rubio (R)||Opposes minimum wage increases.||Wants to cut taxes for small-business owners.||Wants to repeal the Affordable Care Act.|
|Ben Carson (R)||Has changed views but most recently said he opposed minimum wage increases.||Wants to simplify the tax code.||Opposes the Affordable Care Act.|
*Candidates listed by party and their ranks in the Huffington Post polls on Dec. 11, 2015.
“Regardless of your political views on these issues, this will be a critical election for small-business owners,” Yang says. “Presidential elections naturally thrust small businesses into the national spotlight because so many issues affect them directly.”
Small-business owners will use more business credit cards.
Entrepreneurs are turning to more business credit cards to make purchases, and NerdWallet expects that trend to continue throughout 2016. From 2010 to 2015, the total number of business credit cards in use from the top three issuers — JPMorgan Chase, Bank of America and Capital One — grew from 9.9 million to 10.1 million, according to Nilson Report data. Business credit cards from the top issuer, JPMorgan, grew from 4.7 million to 5 million.
This increase makes sense to NerdWallet credit card expert Sean McQuay.
“It can be extremely advantageous for business owners to use business credit cards over personal credit cards or cash,” McQuay says. “Business credit cards offer better rewards than consumer cards, including higher rewards rates for cash back or points.
“However,” he adds, “business owners need to be careful about carrying a balance. Credit cards are not always your lowest-cost option.”
With the upcoming presidential election, an increase in small-business lending and a shrinking gender gap in entrepreneurship, small-business owners have reason to be optimistic for 2016.
“Of all the changes in store for small-business owners, I believe access to capital is the most impactful,” Yang says.
But with so many new financing options available, including business credit cards, bank loans and online small-business loans, it can be hard for business owners to find the one that’s right for them. (Read more about what to know before you apply.)
“Do your homework and compare your options closely before you make any decisions,” Yang says.
To get more information about funding options and compare them for your small business, visit NerdWallet’s small-business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.
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