Small business lending and what to look for

As we head into the new year, many small businesses are organizing their finances and planning out budget, cash flow and expenses to be expected in 2023. With that often comes the need for small business loans that can help propel the business and support ongoing growth.

In addition to the emergency loans that were passed by the federal government during the pandemic to aid in economic recovery, the U.S. Department of the Treasury recently announced the approval of seven additional state plans for up to $1.5 billion in funding under the State Small Business Credit Initiative (SSBCI). Essentially, small business owners might see less barriers to accessing capital this upcoming year.

There are several factors you should consider if you need a small business loan heading into the new year.

1. Achieving 2023 goals

An important question to ask yourself as a small-business owner is, "how will this loan or line of credit help my business achieve it's 2023 goals?" These goals will look different for every business and should be determined well in advance of applying for a loan. Some examples include purchasing inventory, buying equipment, expanding operations, hiring new employees, etc. First identify what growth and successful operations looks like for your business, and from there you can find the right loan or line of credit that has terms to match your needs.

2. Fitting the budget

Different loans have different payment structures, so when shopping for loans it's crucial to decide how each loan's payment structure would fit into to your 2023 budget and financial projections. This begins by creating a budget plan in the first place to determine if you have any extra cash to pay off a loan. There are many ways to create a budget - such as incremental budgeting, value proposition budgeting, and zero-based budgeting - but regardless of the method, it's important to have a well-defined budget with buy-in from the organization.

3. Tax implications

Before applying for a loan, it's important to understand how it will affect your business taxes. The IRS does not consider loan proceeds as revenue and must be repaid within an agreed term, so they have no impact on the business' tax return. On the other hand, interest payments are in fact deductible on your tax return. Typically, monthly payments on the loan go toward both principal and interest, so the portion of the payment dedicated to interest is deductible.

Eligibility and other policies for loans can often change based on new regulations passed by the government, so it's recommended that you stay up to date on any changing tax implications, especially going into a new year.

4. New regulations

According to Forbes, there are no current plans to change how loan funds can be used in your business, but the overall cost of taking out a business loan may change. On top of considering your credit score and business health, which are mostly within your control, lenders also consider market conditions which are a bit volatile with inflation and raised interest rates. Raising interest rates is intended to slow inflation, but this also causes lenders to increase their rates as well. This means that business owners need to stay on watch for new rate hikes and understand the cost of a loan before applying.

Interested in learning about express business loans (term loans and lines of credit) through Republic Bank? You can access up to $250,000 in as little as 24 hours. Visit our website www.republicebank.com/business/business-express-loans/ or give us a call at (800) 526-9127.

• Michael Minetti is SVP/Retail Sales Manager at Republic Bank.