As the global pandemic rages, small businesses face both risks and opportunities. While some industries have rebounded strongly from the depths of the first wave and resisted subsequent waves, not all sectors are recovering equally. Recent application data from Kapitus suggests that the construction, manufacturing and healthcare sectors are rebounding faster and showing greater resilience than other sectors of the small business economy. The data also indicates that retailers and other service providers (hotels, lounges, performance venues, etc.) have experienced a weaker recovery, as changes in consumer behavior made worse by the changing nature of the virus have created a greater uncertainty in these segments of the economy.
Growth drivers in healthcare, construction and manufacturing
Healthcare providers, entrepreneurs and manufacturers are asking for more capital than their pre-pandemic demand, and when these companies apply, they have stronger credit and revenue profiles than they do. other industries. These sectors benefiting from unique macro-trends are likely to support growth for the foreseeable future.
· Health care. Independent health care providers are taking advantage of macroeconomic trends such as the aging of the American population, the increase in the number of insured Americans, and the development of new treatment options for many chronic diseases.
· Construction. Entrepreneurs benefit from a dynamic residential real estate market driven by fundamental changes in the way we work. As American companies increasingly allow (and even encourage) remote working, millions of workers are reconsidering their current living situation. Some want to expand their homes to accommodate better working environments. Some are considering moving away from the office, while others are considering purchasing this second home as they are now less tied to their primary location. These changes often require a contractor to help build or renovate a home to the owner’s unique standards.
· Manufacturing. The United States has seen strong growth in domestic manufacturing since we emerged from the depths of the pandemic. Hundreds of thousands of new jobs have been created over the past year and the manufacturing PMI index is reaching historic highs. This trend is expected to continue as global supply chains continue to be disrupted by the pandemic, recent trade tariffs keep the cost of imports high, and technological innovation reduces the impact of rising wages in the United States. Reducing transport times and costs through domestic production will increasingly be seen as an economic imperative for many manufacturers.
Despite growth, persistent challenges remain for small businesses
Whether you’re a high-demand entrepreneur or reopening your salon for the first time in months, you likely face challenges that weren’t there before the pandemic. Problems that some members of the industry face include:
· Labor shortages. The unemployment rate has improved significantly since spring 2020 and many small businesses are struggling to grow their employee base to meet renewed demand. This is true at all levels, however, roles in direct contact with clients with variable work schedules that cannot be performed remotely appear to be among the most difficult roles to fill.
· Inflation. When labor is limited, the cost of that labor rises and small businesses report significant wage inflation for all positions. Raw material costs have also increased dramatically in some sectors – notably automotive and energy – from the lows of the pandemic. Entrepreneurs, retailers and manufacturers (among others) are grappling with long lead times and unusually high costs of raw materials and finished products, mainly due to disruptions in the global supply chain.
· Demand volatility. Many of the shortages experienced by small businesses are due to volatility in demand. In the first few months of the pandemic, travel, services and physical retail consumption plunged as the economy reorganized to serve a population largely confined to home. As the virus subsided in the summer of 2020 and stimulus checks began to arrive, the economy opened and pent-up demand for goods and services increased, only to fall as the virus raged through the winter. Today, a partially vaccinated population weighs the threat of the Delta variant and continues to look to the future with suspicion when making travel plans and major purchases.
The crisis creates opportunities
Despite the uncertainty in the current economy, new business license applications in the United States have increased significantly from pre-pandemic levels. The United States is going through a period of rapid economic and social change in which Americans are reassessing the way they shop, work and live. This shift creates opportunities for new creative business models which in turn create demand for alternative loan products to facilitate this growth.
Banks have traditionally been poor channels of growth capital for fast growing small businesses. Fortunately, there are small business finance companies that can quickly provide the financing needed to help a growing business fund its next opportunity.
The most commonly available financing options for small businesses include:
· SBA loans. May or may not be guaranteed and may have fixed or variable rates. SBA loans used for equipment, working capital and inventory have a term of 10 years. SBA home loans have a term of 25 years. Personal guarantees are required.
· Equipment financing loans. Usually guaranteed by the equipment purchased and carry fixed rates and terms ranging from 3 to 7 years. Personal guarantees are generally required.
· Term loans. May or may not be guaranteed, depending on lender and credit profile, but comes in a wide range of options depending on credit, term, fixed or variable rates, lender’s equity position and the speed and ease of financing. A personal deposit is often required.
· Cash flow based factoring. Usually unsecured, have variable repayment periods depending on the speed of cash flow and usually do not include personal guarantees.
· Revolving credit lines. Offered by bank and non-bank lenders, they tend to be shorter, unsecured, and often come with personal guarantees.
· Factoring invoices. Offered by bank and non-bank lenders as an advance on unpaid invoices for products and services completed and delivered. They tend to rotate every 30-90 days in accordance with standard payment terms and are secured by both unpaid accounts receivable and a comprehensive guarantee from the borrowing entity.
Financial management after a difficult year
When applying for capital, many small businesses may be afraid to disclose financial problems encountered in the past year. Fortunately, many alternative lenders are focusing their underwriting on current trends and business cash flow and less on operating history during a troubled time. When communicating with your bank or alternative finance company, it is important to keep the following points in mind:
· Be transparent. Communicate openly about the difficulties you have had and your plan to overcome them. Be prepared to provide bank statements and financial statements, even if they show distress. Transparency around your current situation will help you and your capital provider find the right solution for your unique situation.
· Have a plan. Knowing what you need to grow and what you want from a capital injection will inspire others to see your vision. Confidence and passion are contagious.
· PPP forgiveness request. Small businesses that have taken out PPP loans should keep in mind the following forgiveness requirements:
o Reimbursable expenses include payroll, rent, mortgage interest and utilities.
o The second round expanded reimbursable expenses to include general operating expenses, property damage expenses, supplier costs, and worker protection expenses.
o 60% of eligible rebates must come from salary expenses.
o The loan forgiveness period during which forgiven expenses can be accrued is 24 weeks (borrower’s option).
o If the borrower’s loan is less than $ 150,000, they will be eligible for a simplified one-page loan forgiveness process.
It’s been a tough 18 months for small businesses in America, but despite the continuing uncertainty, businesses are growing and demand is growing. As the economy continues to transform, businesses will need to be flexible to meet the challenges of rapidly changing supply and demand, and the capacity of America’s small business community will keep pace. of the challenge.