For the better part of the last 12 months, economists pondered when the Federal Reserve would decide on an interest rate hike. When the time finally came at the Fed's final policy meeting of the year, the increase was just by 0.25%, the first and only interest rate increase of 2016 -- a year that was projected to have multiple rate adjustments.
The Fed was nearing an interest rate hike over the summer until Britain voted to leave the European Union, which caused volatility in the global markets. That hindered their decision for several months leading up to the election. Some economists predicted that a Donald Trump win would cause additional volatility in the stock market due to his hawkish policies of reforming current trade policies and largely unpredictable manner of doing business.
However, the exact opposite has occurred as President-elect Trump’s cabinet continues to take shape and there is more transparency in how his policies will impact the economy, the stock market has surged with buyers in the month following his election. The Dow Jones has been within striking distance of the milestone 20,000 mark.
Steady economic growth factored into the Fed’s decision as the U.S. economy has had six consecutive months of job growth, according to the December 2016 Jobs Report. In addition to the 178,000 jobs that employers added to the economy last month, which is on par with the employment growth rate of 2016, the unemployment rate dropped to 4.6 percent, a nine-year low.
Indeed there are reasons for continued optimism for small business owners in the new year:
1) Although rates went up, the increase was small, which is good news for borrowers seeking capital. The hike was something for credibility, since they signaled a change for months, rather than actual impact. Lenders are showing signs of opening up the purse strings. The flow of capital is the life blood of small business. Big banks and institutional lenders are approving higher percentages of loan applications, and smaller banks are granting about half of the requests.
2) While the Fed signaled it would raise rates in 2017, the amounts will likely again be small. It is better than being overaggressive, and the rest of the world's economy is not growing. Incremental increases give the Fed the ability to measure impacts.
3) Inflation remains low, despite an interest rate hike and strong consumer spending this holiday season.
Meanwhile, loan approval rates at big banks ($10 billion+ in assets) improved to a new all-time post-recession high in November 2016, according to the latest Biz2Credit Small Business Lending Index™, a monthly analysis of more than 1,000 small business loan applications on Biz2Credit.com. In addition, it marked the eighth time in the last nine months that lending approval rates improved at big banks.
Small banks also experienced an uptick in loan approval rates last month, granting 48.8% of funding requests from borrowers. Trump vowed to repeal the Dodd-Frank Act, which burdened community banks with massive regulations and has effectively held them back from granting more loans. Scaling back Dodd-Frank in 2017 would be a big win for small banks, which last approved more than half of their loan requests over two years ago.
Institutional lenders, which have emerged as major players in the marketplace lending industry are approving an all-time Index high 63.3% of funding requests from entrepreneurs after an increase of two-tenths of a percent in a month-by-month comparison.
Credit unions and alternative lenders, however, continued their gradual descent in the marketplace lending totem pole. Credit unions, which are currently approving 41.1% of loan requests, have experienced steady declines in their loan approval rates over the last 18 months. While loan approval rates at alternative lenders (59.2%) have dropped for five straight months.
As the book closes on 2016, early indications are promising for 2017. Trump, a businessman inherits a steady but not spectacular economy on January 20, 2017. So far, the impact of his election has seemed positive from an economic standpoint. We will soon see what happens once he is actually in the Oval Office.
