Inflation, recession worries slow small-business lending

It was a challenging credit market as interest rates rose and capital became more expensive and some lenders became more conservative amid fears of a recession.

Notably, according to the latest Biz2Credit Small Business Loan Index, the percentage of small business loan approvals by large banks fell to 14.4 percent in January. This is the seventh consecutive decline since June 2022 when it was 15.4%.

The lending climate may remain challenging going forward, but local financial experts say capital is still available.

“Demand is strong and we’re busy,” said Joseph Camberato, CEO of National Business Capital, a Hauppauge-based firm that helps small and medium-sized businesses get financing. He did not disclose the amount of the financing, but described the December as the largest in the company’s 15-year history.

He noted that traditional lending institutions continued to strengthen last year, but there was growth in alternative lending, which is generally lending outside of traditional financial institutions such as banks and credit unions.

According to Biz2Credit’s CEO Rohit Arora, the acceptance percentage of alternative lenders has increased from 27.6 percent in December to 27.8 percent in January.

On the plus side for borrowers, approval at alternative lenders can be faster, such as one to seven days compared to 45-plus days at traditional banks, Camberato said. They usually require a small guarantee. But interest rates could go up, he said.

Troy Diaz, a business consultant at Farmingdale State College’s Small Business Development Center, said another option that many clients have found success with is a small business administration loan.

For most 7(a) loans (the agency’s most common loan program), the SBA can guarantee up to 85% of loans of $150,000 or less, and up to 75% of loans over $150,000. Interest rates on these loans are generally variable, with some currently approaching 11%, Diaz said.

Still, he says, “loan sizes are only one aspect of a bigger picture.” “Money If the money helps grow your business and makes sense, that’s something you should consider.”

Swetang Patel, owner of A2Z Distributors in Plainview, a full-service food, snack, beverage, tobacco and candy distributor, said the interest rate is variable and is currently about 10% on a 7(a) SBA loan.

Last April, he secured a $1 million 7(a) SBA loan from Dime Bank and is now seeking an additional $4 million SBA loan. He continues to expand the business and is looking to expand his warehouse from 15,000 square feet to 50,000 square feet by mid-year.

He was initially concerned about approaching lenders given the economic climate, but said the Farmingdale SBDC was helpful in guiding him through the process. Besides the SBDC, there are other resources in East Norwich, such as the La Fuerza Community Development Corporation, which provides microloans, additional business training and credit counseling to minority- and women-owned small businesses.

Giovanna Brachi, executive director of La Fuerza, a fund for alternative lenders such as the Community Development Financial Institution, has seen a significant change in applications and approvals. “People are looking at CDFI and SBA programs, where the financing is up to 85% guaranteed,” Brachi says. And some programs, such as the Empire State Development Small Business Revolving Loan Fund, are focused on small businesses that have difficulty accessing formal credit markets.

But that doesn’t mean traditional lenders won’t lend. Last year, “In We’ve done more small business lending here on Long Island than we did in 2021,” said Vincent DiCicco, vice president and Long Island market manager for Chase Business Banking.

Part of that is Chase’s “effort to improve our lending process,” said Michal Quarles, managing director and head of diversity strategy, Chase Business Banking. This includes simplifying the application process and reducing the amount of documents required, he said.

By the end of the year, he says, the goal is to make loan decisions on the same day as the application. DiCicco says that in many cases now in the past six months, clients have been approved and received funding within days.

They also developed a special-purpose loan program to expand access to credit for businesses in predominantly black, Hispanic and Latino communities, Quarles said. “We’ve seen great growth and a very positive trend,” he said.

But even if capital is available, businesses need to consider when is the right time to borrow. In light of the economic climate, says Joe Tedesco, president/CEO of Ocean Financial Federal Credit Union in Oceanside. “If you want to buy a piece of equipment, consider that it’s more expensive now with higher interest rates and you have to pay more labor to operate it,” he says.

For borrowers, it comes down to overall cost and risk versus reward, he said. When making a loan, the credit union looks at the last three years of financial statements. Tedesco says it’s ready for a 2023 expected return and a possible economic downturn for the borrower.

Herzlich writes a small business column in Newsday.