By Rieva Lesonsky
Most of us small business owners start the new year with mixed emotions. We’re hopeful and optimistic about growing our businesses, yet with anxious about all the challenges we know we’ll face.
To find out what lies ahead, I’ve collected a number of tips, predictions and advice from people in the know. Last week we explored general consumer, financial and economic trends, as well as what to expect in the fields of marketing, technology, retail, and HR.
From Sharon Miller, Managing Director, Head of Small Business, Bank of America
Loan applications on the rise: Entrepreneurs across the country wrapped up 2018 on a high note, expressing confidence in the economy and reporting year-over-year revenue increases and plans for business growth. According to Bank of America’s latest Small Business Owner Report, two-thirds of small business owners intend to expand their businesses this year. To support this growth, 15% of the entrepreneurs we surveyed say they plan to apply for a loan in 2019—an increase of 7 percentage points year-over-year. We’re always interested to see how small business owners are putting credit to work and found that most plan to use loan funding to create a new product or service, expand their operations or invest in new technology.
Transition to digital banking: Speaking of technology, applying for and gaining access to capital is more convenient than ever thanks to enhanced tools and digital offerings. For example, through the Bank of America mobile banking app, entrepreneurs can find a loan that meets their needs, chat with a specialist, and then actually apply for a loan without ever stepping into a financial center. Over the next year, I expect more and more entrepreneurs to adopt digital banking tools to meet their business needs.
From Sebastian Rymarz, Chief Business Officer, Fundbox
In 2019, small business owners can look forward to the continued growth of new financial (Fintech) services that are transforming the way business access credit. These new services, much like Fundbox, use newly available data streams in order to remove unnecessary underwriting friction that limits access to the capital they need. That’s why we are particularly excited about 2019 and the opportunity to help thousands of small businesses grow by providing fast, convenient and transparent access to capital.
From Jared Hecht, Cofounder & CEO, Fundera
2018 was a good year for the economy and its impact on small businesses. Recent research from Fundera shows nearly half of U.S. small business owners and senior decision makers are currently hopeful it will remain strong and continue to grow. The turn of the year is the perfect time for them to strategically consider the financial options available to them. We already know 10% will seek financing options to invest into the growth of their business in 2019.
I anticipate many of these folks will increasingly investigate ways to establish lines of credit or at least extensions of these. This trend has already started dominating the market and I highly recommend them, as they’re non-committal and will always be there when you might really need it. Think of these as a lifeboat—an unpredictable stock market or the threat of a worsening economy might test a small business’s ability to tread water, but a line of credit might be its lifeline to staying afloat in such times.
Owners may wonder where they can source financial solutions from, and there are a multitude of options for them, but we’re seeing lending processes becoming more online-oriented. Tech companies—and now banks—have become online lenders for their customers, and in 2019 I’m hopeful we’ll see additional lenders grow more receptive to small business owners. Likewise, a great next step for 2019 would be banks extending their lending products to owners who aren’t already customers of their own.
From Rob Rosenblatt, Head of Lending, Kabbage on retaining employees
With unemployment at historic lows, small businesses are already finding themselves squeezed on the employee hiring and retention front. Quite simply—in spite of the talk of a potential recession—small businesses are having trouble finding qualified help.
I believe that 2019 will require small businesses to address these issues by adopting compelling employee retention and benefits programs as well as accelerating their use of technologies to reduce the need for hard-to-find labor (for example, through the use of smart bots to handle routine customer service calls & chats).
From Rohit Arora, CEO, Biz2Credit
By almost every measure, 2018 was a strong year for the economy and for many small business owners. However, although profits might be up, perhaps they were not as high as they could have been. The beginning of the year is a good time to reassess your revenues and your expenses and determine how your company might operate more efficiently.
Get “Lean and Mean”: When times are good, it can be easy to overlook the shortcomings of your business. Examine your inventory and see if you are buying efficiently. Do you have too many supplies on hand? Could you get them at a better price? Take time to assess whether you might be able to lower your costs by comparing the prices offered by current vendors and their competitors. You might not want to switch from a vendor with whom you have had a longstanding relationship, but that doesn’t mean you should not take the opportunity to try to negotiate better pricing in the coming year.
Furthermore, labor costs are usually the highest cost of running a business. Are there ways to cut back either the number of employees you have or the number of hours they work? Perhaps you could hire an outside firm to handle tasks for which you do not need to hire full-time employees. Keeping staffing under control can mean the difference between profitability and loss.
Incorporate technology to become more efficient: To survive in the 21st century, companies must incorporate technology and taking advantage of potential cost savings. Encourage customers to sign up to receive their bills electronically each month by offering an incentive like a $10 credit for going paperless. This will cut down on printing and postage costs.
In small business finance, lenders that have not incorporated technology have fallen behind. Big banks have invested in digitizing their small business loan processes, but many smaller (regional and community) banks and credit unions have not. If a bank does not have the capital or the ability to set up online loan applications, they should partner with a FinTech company (like Biz2Credit ) that can bring the technology.
Reinvest in your company: If your company is flush with cash after the holiday season, paying off a high interest credit card is one option. However, if your company has grown in your local area, it might be the time to expand elsewhere. That might involve purchasing new vehicles and equipment. If 2018 was strong, it is a good time to apply for money while the interest rates on bank term loans are still relatively low. The best time to borrow money is when you are not desperate for it.
The small business lending environment remains positive. Big banks are approving 27% of the loan applications they receive, according to the latest Biz2Credit Small Business Lending Index (Dec. 2018). Although interest rates are still likely to rise again in 2019, it is still a good time for small businesses to borrow money.
For instance, opening a business line of credit with a 7 or 8% interest rate can enable you to pay down a higher interest debt, such as a cash advance or credit card that carries a 15% interest rate.
From Brock Blake, CEO & founder, Lendio
Small business optimism hit record highs in 2018, yet difficulty finding workers, minimum wage hikes, the current government shutdown, and the threat of a slowing economy could darken the sunny outlook for small business owners in 2019. When it comes to access to capital for SBOs in 2019, there’s still good news. Online lending continues to grow, becoming more personalized and more readily available to a wider swath of businesses. In 2019, three trends will continue to transform the financial services landscape:
1—More personalization. What used to be nice-to-haves will be the standard in business lending as business owners are presented with faster and easier ways to apply for and access funds. Data analytics will play a bigger role as business owners demand a more personalized experience, with scalable services available to them on their own timelines to meet their ongoing needs.
2—More one-stop shopping. In order to be successful, small business lenders have to offer what the target audience wants. In 2019, it’s options. Equipped with faster underwriting processes than their traditional lending predecessors, online lending marketplaces can produce multiple, personalized offers straight from a mobile app and in a fraction of the time. Integrations with bookkeeping tools and other applications small businesses use daily will further enable this one-stop model of accessing capital.
3—More access to capital. Banks will make a bigger push to adapt to digital trends as they seek to complete with online lenders. This is good news for small business owners in terms of access to capital. Online lenders will continue to optimize alternative methods of measuring creditworthiness, forcing banks to follow suit. In 2019, access to capital will improve for young businesses that once lacked options in the debt financing world.
Krista Morgan, Cofounder & CEO, P2Binvestor
There is quite a bit of uncertainty surrounding the state of the economy for 2019, and that could have a substantial effect on small business. SMBs require working capital, and if sales start to slow down, they may need to rely on access to quick funding—something that has been traditionally difficult to find during a recession or economic downturn. But 2019 is a new year, financial technology has advanced, and there are a lot more options for business owners aside from going to a bank and asking for a loan. Having access to more online lenders will be beneficial to small businesses and may even help many of them survive a theoretical recession.
From BlueVine executives
Eyal Lifshitz, CEO & Founder
Small business financing will face the ultimate test in an economic downturn: During the Great Recession 10 years ago, community banks subsequently led the recovery in small business financing. But following a wave of consolidation, marked by community bank closures and acquisitions, community banks are no longer in a position to play a similar role in another downturn when traditional banks are also expected to scale back small business lending dramatically. There’s been a lot of talk about small business lenders not being tested yet, so that test may come with the next recession. Those that were able to raise adequate debt financing capital and put in place solid risk underwriting systems will not only survive—they will actually come out of a recession stronger and better-positioned to meet demand.
Ido Lustig, Chief Risk Officer
Artificial intelligence and machine learning will lead the way: Banks and Fintech companies will deepen their collaboration, allowing banks to deploy more advanced models. Regulation will start playing a more significant role in defining which data points/models are allowed for use. Lastly, with the economy starting to turn, we will see how well these models, which have worked well in the past few years of prosperity, will perform in a less supportive economic environment.
Blockchain will help lenders reduce real-time loan stacking: The hype around cryptocurrencies is nearly gone, and it’s time to focus on the more interesting part of it—the blockchain technology. In 2019 we expect to see first use-cases of such technology for logging and sharing data among lenders. There is a true potential for real-time data sharing which will help lenders avoid lending to clients who just took similar loans from other lenders, in a decentralized and anonymous way. This will allow the industry to overcome one of the challenges quick loan approvals bring: real time loans stacking.
Charles Amadon, VP of Business Development & Strategic Partnerships
Partnerships between Fintech companies and banks will move from headlines to the frontlines: As the early adopters of the Fintech partnership model (e.g., JPMorgan Chase, American Express, PNC) fully deploy new Fintech-partner driven solutions for payments and lending, banks across the board will be re-evaluating their longstanding dependence on core technology providers (e.g., FISERV, FIS, and JackHenry). Executive teams at smaller banks will begin investing in Fintech partnerships, in a bid to maintain their local competitive edge as new national digital banks encroach on their territory.
Older, more traditional SMBs will broaden their lending horizons: In 2017, 30% of business owners looked for a small business loan online. The 70% who didn’t were predominantly older, and more traditional in their approach to seeking financing. In 2019, we will see a more aggressive push by SMB lenders to tap into a more mainstream audience of business owners who have not been looking online for financing options. This will be driven in part by increased competition between the SMB lenders, and a larger push by those lenders to market themselves to a broader audience of SMBs.
New data recently released by Kabbage, Inc., a global financial services, technology and data platform serving small businesses that now extends access to more than $10 million per day via its automated lending platform, shows the majority of successful entrepreneurs began their businesses with little cash flow and short run rates. In its survey of thriving small business owners, Kabbage found 58% of small businesses started with less than $25,000 and one-third started with less than $5,000.
How small business start financially: 65% of the respondents surveyed admit they were not fully confident they had enough money to start their businesses. In fact, 93% calculated a run rate of shorter than 18 months, of which 25% calculated a run rate of less than six months, and 36% didn’t calculate this at all. Yet, 82% did not doubt they had the right qualifications and proper experience to run a company and all are successfully operating today.
Start-up money varies by industry: According to the survey, the most expensive types of small businesses to launch are restaurants, medical offices, and manufacturing companies, with 38%, 23% and 19%, respectively, claiming it cost more than $100,000 to begin.
Alternatively, the three small businesses that required the least amount of startup capital—$5,000 or less during the first six months are accounting (45%), online retail (44%) and construction and landscaping (39%).
Kabbage’s Head of Lending, Rob Rosenblatt says, “The data shows cash flow and run rate uncertainties are all too common among small business owners. While it may seem daunting, it’s their tenacity and self-confidence to succeed that champions their doubts and compels them to start the amazing journey of entrepreneurship.”
Retail Banking Trends
Kony, Inc., a leading provider of digital banking solutions, just announced the results of the 2019 Retail Banking Trends and Predictions research, published by Jim Marous, owner and publisher of the Digital Banking Report. This is the fourth year Kony DBX has sponsored the global survey of annual trends.
There were some noticeable changes in the trends from previous years.
- For the first time ever, the use of data, AI, and advanced analytics were ranked first, replacing improving the customer experience as the number-one trend.
- Organizations are realizing the importance of open banking and APIs.
- The importance of innovation increased in importance in this year’s survey. However, while organizations seemed to be proud that they have begun the digital transformation process, most don’t believe they have gone very far and less than 30% have digitally transformed the most basic process, such as new account opening services; as a result, many other digital initiatives are falling behind.
“Despite recent uncertainty in the financial markets, the economic outlook for the banking industry remains positive at a time when regulatory forces are encouraging innovation, and new digital technologies provide opportunities to improve customer experiences,” says Jim Marous, owner and publisher of the Digital Banking Report. “There are strong indications that banking organizations worldwide understand the primary trends impacting the industry as well as the actions that are needed to respond to competitive pressures.”
The Retail Banking Trends and Predictions report also provides an opportunity to do an end-of-year review of last year’s projections. In addition, the report provides valuable insights into strategic priorities for 2019 and analyzed the progress being made by financial institutions in the process of digital transformation.