Rollbacks to Dodd-Frank and other regulatory rollbacks allowed banks to thrive through 2018. However, this has not made obtaining business funding significantly easier for small to mid-sized businesses. The challenge many face is these regulations have helped improve the bottom line of banks, but fewer community banks are having an impact on small business lending.
Public Policy, Banking and Financing
There is an expectation that deregulation will continue through 2019 as President Trump continues to move forward with stripping regulations. Some of these changes will make it easier for new businesses to form, others will allow businesses to save money, and still others are likely to make access to capital easier. However, there are some changes which are currently occurring in the banking industry which all business owners should be paying attention to including:
Payment services — as more online payment services continue to make it easier for people to pay online, 2019 may be the time when we see larger market players such as Amazon step up and offer payment services. This can be good for competition but may not have much impact on available financing options.
Digital banking growth — online banking will continue to explode as people become more confident doing their banking online. The challenge this can present for small and mid-sized business owners, is this could mean fewer employees at brick and mortar banks narrowing the opportunity for face-to-face interaction. There is no doubt that oftentimes businesses doing business with community banks depend on relationship.
Online attacks to banking — cyber attacks will continue to be a concern and as more people take their banking mobile, this can only spell trouble for online and mobile banking customers. Institutions will have to continue to work hard to earn customer trust and ensure security of banking information.
The Impact of the Decline of Community Banks
One of the challenges facing small businesses is the decline of community banks. Currently, approximately 77 percent of agricultural loans and over 50 percent of small business loans are funded by community banks. There are reasons why fewer community banks means capital is more challenging for small business owners.
Large banks and financial institutions tend to use a ‘one-size-fits-all’ approach to underwriting loans. This means they are looking at specific criteria and making their loan decisions based on that criteria. This is problematic for small businesses who often need someone willing to listen to the unique perspective of a small business owner and dig further into the financial strength of the company.
Despite the relaxation in regulations, community banks are facing challenges competing with larger lenders and with credit unions. Again, for small business, this is a challenge for financing since these financial institutions tend to use more of a cookie cutter approach to funding.
In many cases, small businesses do not meet the basic criteria including loan amounts, capital on hand, or assets which may be used for collateral.
Meeting Business Financing Challenges
Even with decreased regulations and assuming going into 2019 more banks show a willingness to open up funding to more small and mid-sized businesses, there are still specific business types which will continue to face headwinds when it comes to obtaining funding.
Subcontractors often face unique challenges obtaining funding since they are often at the mercy of a contractor. Contractors face their own challenges and when they go to a bank, they are often turned away because the banks do not always understand the business model which is being used. Other businesses such as staffing agencies, architects, and environmental companies may continue to face challenges obtaining much-needed financing. This is when Capstone Corporate Funding can be the solution to your cash flow and capitalization problem.
Capstone never takes the approach that every financing proposal will work for every company. We also understand the importance of underwriting every loan package as a stand-alone. This means we are uniquely positioned to help more small and mid-sized business obtain the right financing package to meet their needs. If you are facing challenges securing financing for your business, contact Capstone Corporate Funding to review your company’s working capital requirements. You can also request additional information about Capstone’s financial services upon request. Please contact us by filling out our simple form on our website or contact us directly at us at (212) 755-3636 to speak with a representative today.
