The small business economy is turning a corner. COVID-19 vaccinations are widespread, and local governments across the country are easing shutdown restrictions. That's a far cry from the early days of the pandemic in 2020. Small business owners were forced to halt operations or spend extra cash on social distancing measures. Many businesses didn't survive, and the ones that did needed government aid and loans to make it.
The government responded with the CARES Act, providing business owners with forgivable loans through the PPP. Those funds quickly ran out, and months later in late December, Congress approved another round. With Biden in office and the pandemic raging, a new round of stimulus was signed into law in March.
In 2021, small business owners who took advantage of PPP will need guidance on how to receive forgiveness on their loans and whether they will face a tax hit as a result.
With the economy recovering and businesses thinking about growth again, small business owners will continue to turn to banks, credit unions, the SBA and alternative lenders for cash in 2021. Banks and credit card issuers have been less willing to lend to small businesses during the pandemic and will likely maintain stringent requirements. Online and alternative lenders have stepped in to fill that void. In 2020, the Federal Reserve slashed interest rates nearly to zero, and they aren't expected to rise dramatically in 2021, despite the gradual pandemic recovery.
Not only will business owners who use online and alternative lenders in 2021 receive low interest rates, but advances in technology may improve the process, with artificial intelligence and machine learning reducing loan approval wait times. Credit scores still matter, but lenders are increasingly scrutinizing other aspects of business owners' finances to ascertain their creditworthiness. Altogether, these changes should make it easier and quicker to get a small business loan in 2021.
As in 2020, the number of companies that offer online and mobile lending is expected to grow in 2021. Since digital options provide extensive financing opportunities and faster approval, they are expected to be increasingly popular choices compared to traditional banks and credit unions.
September 2021: The Consumer Financial Protection Bureau (CFPB) wants to increase the transparency between lenders and small business borrowers, proposing a new rule that if finalized, would require lenders to collect more information about borrowers including demographics, pricing and why they were turned down for a loan. The aim is to get a clearer picture of how easy or difficult it is to obtain financing and what barriers are stopping them from getting funding.
August 2021: The Small Business Administration opened an online portal to make it easier for businesses with Paycheck Protection Program loans to apply for forgiveness. The tool is only for loans of $150,000 or less. It lets borrowers apply directly with the SBA. Previously borrowers had to go through the bank to get approval. With this tool, borrowers can easily upload receipts and payroll details for 2019 and 2020. Once everything is uploaded and properly submitted, the SBA will review to determine the forgiveness status.
July 2021: The Small Business Administration is no longer requiring borrowers with PPP loans of $2 million or more to provide financial documentation to prove there was a need for the loan. Borrowers with small loans had to always self-certify the need and now borrowers with larger loans will be able to do so as well. By eliminating that requirement for all borrowers, the SBA is speeding up the time it takes to approve the forgiveness of a PPP loan. The SBA plans to publish a FAQ on the change shortly.
June 2021: The Paycheck Protection Program expired in late May, putting an end to the very popular loan program enacted during the coronavirus pandemic. The program, while it provided a lifeline for many small business owners, was also riddled with fraudulent claims and faced criticism that it didn't help businesses that could benefit the most from those loans. The SBA issued a total of 11.8 million PPP loans, with a value of $799.8 billion. Now that the program has ended, we anticipate small businesses needing funding will turn to traditional loan options, e.g., banks and online lenders.