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Will Rising Interest Rates Affect Small Business Loans?

Written by CMG News Contributor, Doug Carleton

Recently I have pointed out that if a business owner was considering applying for a loan for something like expansion, or new equipment, or debt consolidation, there have been few times in the past that factors were so favorable, particularly now with low-interest rates. That time is about to become history. Rates are starting to inch up. Rates on the five-year Treasury note, which is one of the major indexes used by banks to set loan rates, have risen about half a point in the last six months. That’s very small, but the trend is apparent and up. And banks know it’s coming, so they are starting to raise their rates to get out ahead of future increases. It’s going to be very gradual. Last week, four Federal Reserve governors predicted that the Fed probably wouldn’t be raising their rates until early 2022.

Expansion and growth financing should be plentiful well into 2022. When you apply for a bank loan, a bank will require copies of your business tax returns. So, if you decide to take advantage of the current low-interest rates, you will have to furnish your 2020 business tax returns. Since many small businesses probably have not filed yet for 2020, even though they extended the filing date for personal taxes, in most cases, the business filing dates have not been changed. Different states may have some variations, and there are always extensions, etc... But, even if a borrower has gotten an extension on their business taxes, a bank is probably going to wait to decide until they get them. So, depending on whether you see the benefit or need to be applying for a loan soon, be aware that you are going to have your 2020 tax returns available.

And one more thing to keep in the back of your mind. Most banks will probably be willing to accept the fact that sales and profits for many small businesses have gone down because of the pandemic, but that won’t mean an automatic turndown. Assuming that you can project a steady increase in 2021 and beyond (hopefully already beginning to show when you make your application) and that all the other pieces are satisfactory and in place, your chances for approval could be good. And even though inflation is well in check now and probably will continue to be for some time, if you sell a product or products that will be in high demand (or has been stuck in the Suez Canal), the cost of those goods may be going up more than they normally would. So if you are making projections make sure you factor in the potentially higher costs and make sure your sales coincide so that your profit margins keep up.

A rapidly-improving economy and banks loaded with almost idle cash that they need to get out make for an optimal opportunity for small businesses to find funding now and in the near future.


This blog entry is a slightly edited excerpt from Doug Carleton's 'The Daily Life Of A Small Business Owner' series. Doug was a mentor with SCORE, Startup Virginia, and Lighthouse Labs, and has 25+ years of experience in small business finance including 12 years in SBA lending. To contact Doug directly, please email him at


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