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Positive outlook for 2016

Technological innovations seen driving small business growth

Martin Desmarais
Positive outlook for 2016
Daniel DeMeo, chief executive officer of CAN Capital (Photo: Photo courtesy of CAN Capital)

As small businesses hit the ground running in 2016, optimism seems to be high overall, which has many planning for growth and expansion in the New Year. However, there are a number of key trends that will dictate small business success over the next 12 months ranging from increased online lending and better use of technology to the impact of interest rate hikes.

Importantly, small business entrepreneurs expect good things this year. According to a 2016 outlook report by Balboa Capital, 73 percent of the businesses surveyed late last year expected the economy to finish the year on a positive note and to start the New Year strong. These same businesses report plans to increase investment and expansion efforts.

According to Jake Dacillo, marketing director at Balboa Capital, the survey highlights that small businesses actively moved to finish 2015 strong and start 2016 moving forward.

“They are acquiring capital to invest in equipment, vehicles and technology, among others, to help fuel growth, increase efficiency and expand market share,” Dacillo said.

A survey from CAN Capital found similar results about the effort small businesses are putting into preparing for a positive 2016. CAN Capital asked small business owners what they’d like to invest in the most to start the New Year and found that top of the wish list was new equipment/expanded inventory as ranked by 29 percent of the respondents. The next item for investment was improved technology systems (24 percent), expanded marketing efforts (18 percent) and business strategy/consulting (17 percent).

Mobile payments become king

Another CAN Capital survey highlighted one of the major trends that will impact small businesses in 2016 — the growth of mobile payments technology, which allows users to make purchases using their smartphones.

According to CAN Capital, almost half of the businesses it surveyed in late 2015 believe that mobile payments are changing retail consumer spending. This shift can be attributed to mobile technologies becoming more available to the average retail consumer since the launch of products such as Apple Pay, Samsung Pay and Chase Pay over the past year.

According to research by eMarketer, total mobile payment transactions are expected to reach $27 billion in 2016, with users spending an average of $721.47 annually. Total mobile payment sales will rise faster than average spending per user in 2016 because of the growth in the number of overall users of the technology.

Increasing mobile payments brings up a number of concerns for small businesses, including data breaches, security standards and transaction fees.

Daniel DeMeo, CEO of CAN Capital, stressed that the rapidly changing mobile payments technology is altering the small business landscape.

“Especially for small businesses, it can be costly to keep up with these technologies in order to offer consumers the choices they prefer when walking up to the cash register,” DeMeo said.

More tools for internet services

Keeping with the technology theme the ability for small businesses to use technology to compete will only continue to grow as a differentiator in 2016.

Services that were once only available to big companies that had the millions to spend on technology are now consistently available for low cost through apps for small businesses. This ranges from delivery services to operation logistics to marketing. The app revolution has made it so that there is very little a big businesses can do on the Internet services front that small businesses cannot mirror.

Examples include PostMates, which helps local restaurants and groceries improve the range of their deliveries; Beacon, which gives small businesses more ways to advertise to people who are physically near a store through mobile devices; and Likeable Local, which automates social media marketing for small businesses.

Online lending options increase

From most reports, 2015 was a banner year for loans and lending to small businesses. For example, the U.S. Small Business Administration, a major source for small business loans and financing, had its best year on record. The SBA’s flagship 7(a) loan program set a record with $23.5 billion in 2015, with loans up 22 percent to women, 23 percent to minorities and 103 percent to veterans. SBA officials expect more of the same in 2016 and say that loans are already up 19 percent for the new fiscal year.

However, the SBA is also getting its hand in the game of online lending, which is an increasingly popular way for small businesses to find loans, with its new SBA1 platform that will connect its lender banks with small businesses directly.

Last year was one in which online lenders flooded the marketplace, but most small businesses did not take advantage. Research from Morgan Stanley estimates that online lenders provided $7.9 billion in small business loans in 2015, which is up 68 percent from the year before, but is only 3.3 percent of the total small business loan market. The predication is that online lending will reach 20 percent of the market by 2020, but for now there are more options than businesses looking for them so there is a potential big advantage for savvy small businesses that use online for loans.

Notable online lending companies include: OnDeck Capital, Kabbage Inc. and Rapid Advance.

Interest rates rise

The Federal Reserve raised the interest rates in December for the first time in a decade in a sign that the government believes the economy has finally recovered. While the opinion on how this impacts small business can be mixed, typically interest rates are accompanied by a short-term economic boom — driven by positive consumer sentiment and spending — which is a benefit.

Higher interest rates, however, can impact the bottom line activities of small businesses particularly operational, manufacturing and distribution costs.

Small business that rely on the sales of big-ticket items that require financing and those in the real estate or mortgage industries will see the most immediate impact from the hike in interest rates.

Long-term the interest rate hike is likely to signal a period of increasing rates. Typically, interest rate trends run in a 10-year cycle and once it starts toward higher rates this is not likely to change for several years, at the very least. The expectation is that the Fed will continue to raise rates once a quarter throughout 2016, but the recent rate hike was small at .25 percent and the pattern will be for similar small increases.

In other words, small businesses should be able to adjust and the rates will only continue if the economy continues to stay strong, which is preferable above all else anyway.

While there are other factors that will impact how small businesses perform in 2016 — the impact of changing minimum wage laws and health care should be watched closely by all businesses — how entrepreneurs get a handle on the aforementioned major trends will be critical in making this upcoming year a success instead of a failure.