Expert Predictions: Business Loans for 2013

Posted by on January 2, 2013 in Business Start Up Advice [ 0 Comments ]

When it comes to small business loans, the New Year’s baby might look more like a cranky old man than a wide-eyed, optimistic partier.

Gazing into their crystal balls, experts say that the climate for small business in the new year seems to be marked by uncertainty and skepticism. (We wonder if it has something to do with lucky 13?)

The Federal Reserve doesn’t expect the economy to grow by more than 3 percent (still better than the 1.7 percent it grew in the latter part of 2012, but hardly growth that leads business owners to do their happy dances.

According to a survey of small businesses conducted by PNC, business owners have low expectations for sales and profits and are less than optimistic about both local and national economies than they were last year. Just 58 percent of companies are planning to make any capital investments in the next six months (down from 70 percent at the same time last year), and just 19 percent are likely to take out a new loan or line of credit in the next six months.

We don’t see what’s so great about the Great Recession.

Here’s what else experts have to say about business loans in 2013:

Depressed lending: Not only are banks cautious about making small business loans, but home equity loans — which people often use to start or grow a business — are also difficult to get, James Schrager, a professor of entrepreneurship at the University of Chicago Booth School of Business, told the Associated Press. He predicts that depressed lending will be with us in 2013 and beyond.

Increased rates: Interest rates for small business loans can only go up from the current rock-bottom rates, Rohit Arora, the president of Biz2Credit, told Managing Small Biz.

Shopping around: With banks keeping a tighter grip on funds, business owners will need to shop around more for cash, using the internet to search for potential lenders, Arora said. In addition, more business owners will turn to credit card financing and loans from family and friends to help start up their companies. Finally, if Congress passes the Small Business Lending Enhancement Act, which would raise the credit union spending cap to 27.5 percent of assets, an additional $13 billion in loans would be made available to small businesses.

Fewer tax breaks: One of the most important tax deductions for small business owners — the Section 179 deduction, which applies to equipment purchases — has been cut to $25,000 next year (down from $125,000 in 2012 and $500,000 in 2011). While Congress can increase the deduction at any time after the new year has begun, there’s no guarantee for a tax break, which could mean fewer business will take loans to pay for capital investments. “It’s a huge change for companies planning on making investments,” Todd McCracken, President of the National Small Business Association told the Associated Press.

Tax increases: The president’s plan to increase tax rates for the country’s highest earners is a major concern for business owners (including sole proprietors, partners and owners of S corporations) who report the income from their business on their individual 1040 forms. As a result, affected  business owners are saying that not only will they not be able to hire, they might actually have to cut jobs, not to mention reduce their spending.  In addition, no extension of the payroll tax cut means both consumers and employers will be paying higher taxes next year, which could cost the country 500,000 jobs, according to The Atlantic’s Matt O’Brien.

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