How Does The Current US Economy Affect Business Loans?

Updated October 6, 2023

Business loans are instrumental in ensuring many entrepreneurs, start-ups and other fledgling enterprises are able to gain a foothold in their industry. Indeed, such arrangements can also be invaluable to more established outfits who encounter temporary cashflow issues or need extra capital to fund expansion plans. Regardless of the size of your company or the sector it operates in, it’s advisable to learn more on business loans to maximise your opportunities to succeed.

However, the economic upheaval of the last 18 months has dealt a double blow to businesses across the US and beyond. On the one hand, the lockdown restrictions imposed to limit the spread of Covid-19 have negatively impacted the day-to-day operations and balance sheets of countless businesses around the world. On the other, banks and other financial institutions have been less keen to offer loans due to the fragility of the current climate.

Risk aversion

By their very nature, banking institutions are risk averse creatures. The financial sector thrives on sound investments which are guaranteed or very likely to return a profit, which is why anyone seeking to obtain a business loan must do extensive preparation prior to filing their application. This involves drawing up an airtight business plan and performing the requisite mathematical calculations, including projected profits, running costs and the suchlike.

When an unprecedented incident like a global pandemic occurs, this instantly makes banks even more reluctant to part with their reserves of cash. Suddenly, the bar for accessing liquid capital is raised even higher across all facets of life – the experience of many first-time buyers seeking to gain a mortgage is testament to that difficulty. The same is true in the business world, yet that same risk aversion can have damaging side-effects if it errs too much on the side of caution and ends up strangling the very economy it aims to protect.

Changing conditions

These negative impacts were especially pronounced because many businesses were already on their knees due to the pandemic. According to a survey of some 5,800 companies conducted in the weeks following the virus’s outbreak in the USA, the median business with a monthly expenditure of over $10,000 had only enough contingency funds for them to survive for a fortnight. That kind of insecurity meant mass closures, redundancies and bankruptcies experienced across the USA.

Fortunately, the rapid development and deployment of viable vaccines has meant that a majority of the US population has gained some immunity against the disease. This has allowed the government to reopen the economy and stimulate its recovery, with banking institutions once again beginning to consider business loan applications more leniently. It is to be hoped that this trend will continue in the coming months and years as case rates fall and the economy bounces back.

Covid-19 has been devastating for business loans and the countless companies which rely upon them – but the signs are encouraging that the economy is currently in recovery mode. Should it continue in that vein, business loans are likely to become more and more available to enterprises across the US in the near future.

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