This is a guest post from Robert Riedl, Head of Capital Markets at Dealstruck.
According to government data recently released, the U.S. economy added 271,000 jobs in October, reversing a month’s long trend of disappointing growth in employment rolls. Due to the strong hiring, which surpassed analysts’ expectations of 185,000 added jobs, the unemployment rate dropped to 5%, and wages grew at the fastest pace since 2009, rising by 0.4 percent.
According to analysts, this combination of strong hiring, rising wages, and a lower unemployment rate make it likely that the Federal Reserve will introduce the first interest rate hike in nearly a decade.
What does all of this mean to the small business owners in the U.S.?
“Research we conducted in August indicates a correlation between strong hiring and a need for access to capital for small business owners,” said Robert Riedl, Head of Capital Markets at Dealstruck. “In other words, when the economy is adding jobs at a strong pace business owners gain confidence in their ability to dip into cash reserves or utilize outside capital to expand their business.”
The research Riedl cited was conducted in August, after a string of relatively weak hiring reports. Using surveys of business owners in southern California, Dealstruck sought to understand when SMBs would use business loans to expand. The results indicated that even businesses with strong financials and a clear ability to expand were hesitant to take on the risk of financing when jobs reports were soft.
“After a few months of soft demand for business financing, we’ve already seen a strong uptick in businesses applying for loans in the last weeks of October,” Riedl stated, “and as long as the economic indicators continue to perform well, we expect increased demand for access to capital.”
And how might a hike in the federal funds rate by the Federal Reserve impact business owners?
“The current level of the federal funds rate is zero percent and this was put in place by the Federal Reserve as an extraordinary measure to help boost the economy out of the Great Recession. The expected increase in December would be confirmation by the Fed that the economy has strengthened enough to be able to “take off the training wheels” of zero percent rates and begin the normalization process,” Riedl stated.
“In addition, the expected initial increase is only 0.25% and further increases beyond that are expected to be slow and gradual. As a result, small businesses should feel very little impact from this. The bottom line is that small businesses should benefit significantly more from the stronger economy associated with higher interest rates than the impact of slightly higher funding costs,” Riedl concluded.
About Robert Riedl:
Robert Riedl is the Head of Capital Markets at Dealstruck, an online lender that provides term loans and lines of credit to small businesses. Prior to joining Dealstruck, Robert Riedl was the COO of a publicly traded specialty finance company, Consumer Portfolio Services, Inc. (“CPS”). Robert joined CPS in 2003 and held a variety of senior positions, including chief investment officer and chief financial officer. Robert started his career as an investment banker for ContiFinancial Services, Jefferies & Company, and PaineWebber. He has also served as a principal at Northwest Capital Appreciation, a middle market private equity firm.