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Top Predictions for Commercial Real Estate and Small Businesses in 2022

Commercial Real Estate Loans
Company News
Small business
March 10, 2022

Like 2020, 2021 presented challenges for small business owners, often revealing historical and systemic disinvestment in communities of color. It also created opportunities for businesses to adapt and rebuild. 

While communities and businesses are still dealing with the repercussions of the pandemic, we can work together to foster a positive outlook for the year ahead.

With our sister organization Capital Impact Partners, our team has taken a look at what our community members, partners, and investors may experience in 2022. 

Take a look at our predictions for this year and how trends and policies may affect you and others in the community development/small business space:

 

Top 2022 Predictions:

 

Ellis Carr: Momentum for Change is Needed to Build Wealth in Underestimated Communities

Once again, our country finds itself in a moment of necessary change. The last two years have laid bare what many people have known for some time: all lives in America are not treated as equal; opportunity benefits a few, and the impacts of the pandemic and institutionalized racism in our country have left communities of color with diminished wealth and ability to thrive. 

We need to rethink the policies and practices that are at work in our communities. In addition to the work we are doing, in 2022, I predict that more organizations will commit to advancing racial equity and breaking down barriers. 

Some examples of organizations already doing the work include the Low Income Investment Fund (LIIF), which just launched a Black Developer Capital Initiative to fill the capital access gap for Black-led affordable housing developers. Accion Opportunity Fund is providing $5 million towards loans to finance businesses hit the hardest during the pandemic, especially those led by people of color. The Expanding Black Business Credit Initiative (EBBC) created the Black Vision fund to give $5 million in loans to support six of the most experienced Black-led and serving CDFIs in the country.

Companies that make commitments to racial equity are becoming the norm, no longer the exception. Commitments like these will help build inclusive and equitable communities by providing people access to the capital and opportunities they deserve.

 

Robert Villarreal: SBA to Provide Additional Resources and Opportunities to Entrepreneurs of Color

On the policy side, I expect the Small Business Administration to attempt to innovate and bring additional resources to entrepreneurs, especially entrepreneurs of color and those located in low-moderate income communities. Focus will be on regulatory changes, as any new legislation will be impossible to pass.

For small businesses, they will continue to adapt by adopting new technologies that will leave them prepared for new pandemics and global challenges. And we will see record growth in new start-ups, as those that left the job market, look to strike out on their own. Demand for start-up capital will be high, and mission-driven lenders like us will have record level support given to small businesses.

 

Ian Wiesner: Community Development Projects Will Grow

We expect to see growth in the pace of community development projects in 2022 as we hope to increasingly manage the impacts of the COVID pandemic and as we see federal stimulus dollars continue to make their way into projects. However, whether or not the increase will be marginal or boom-like will depend on several factors:

  • Interest rates have been increasing in recent weeks which could somewhat depress the pace of growth if that trend continues
  • Construction costs have been rising due to labor and supply shortages. These rising construction costs make projects harder to pencil and could also serve as a counterweight to growth.
  • Like much of the economy, the community service sector is struggling with employee retention and burn out, especially in sectors like health care clinics and schools. Community organizations must be able to retain and stabilize their staff in order to grow.
  • Passage of some version of the Build Back Better bill could result in a further stimulus to community facility development. Of course the details of what is included in a final bill, especially inclusion of affordable housing provisions, will greatly drive that impact.

Of course everything takes a back seat to the COVID pandemic. Continued growth is only possible if we are able to manage and control the pandemic.

 

LaKisha Gant: SBA 504 Meets Lending Demands More than Ever Before

As we enter into 2022, SBA 504 lending remains at an all time high. Based on our current trajectory, we will exhaust the appropriations alloted to the program again this year if Congress doesn’t act and increase the threshold. Here at CDC Small Business Finance we are working with our partners and federal legislators across the industry to expand capital to ensure there are continued resources for small business lending. 

This would be the second year in a row that the program exhausted all of its appropriations. That means nationwide, the SBA 504 program has assisted more small business borrowers with purchasing commercial real estate and providing permanence to their businesses operations than ever before. That is very exciting news for America’s small businesses and I hope this momentum continues.

 

Nimaj Driscoll: Transformative Place-Based Lending in Detroit

When I think about 2022 and the small business landscape in Detroit, the first word that comes to mind is perseverance (thus the local phrase, “Detroit Hustles Harder”). Detroit, a predominantly African American city is the home of some of the most creative, hard-working, and entrepreneurial people who have historically found a way to make do with less. Although that can be seen as a valuable skill by many, it is a skill that many of us unfortunately developed out of a sheer lack of access to resources. Despite several of our Black-owned businesses having demonstrated that they are ready for funding, they still struggle to get financial backing. This will never be an easy problem to solve but every solution starts with a plan. 

As a leading mission-driven lender this is where we come in. Detroit is CDC Small Business Finance’s newest geography. Serving an area that has its own unique set of challenges is a tall task indeed, but I am confident in our ability to bring measurable change to a community that is accustomed to rhetoric and ineffective action. When others look solely at risk, we look at a person’s commitment. When others end the conversation when they see a low credit score, we seek to understand their story and focus on their character. 

Bringing these transformative place-based lending philosophies to Detroit will not only be life changing for small businesses, it will also show what truly being committed to the needs of a community looks like which then can be replicated. We often hear the phrase “taking a chance” but I see our work as creating change by giving opportunities. Based on the success we’ve seen with the Activate product, we anticipate similar character-based lending models coming into the market. 2022 is the mark of a new beginning!

 

Shelli Hayman: Increase in Small Business Lending to New Areas

I foresee 2022 being a year of continued learning and growth for our small business lending team as we work hard to continue to innovate and build on our already solid foundation to provide the most efficient delivery system in our lending space! For the small businesses we serve, they will continue to be entrepreneurial, creative and agile in adapting to the ways of our new world as we press ahead with the pandemic. 

Now is the time for even greater focus on listening to the needs of the communities and people we strive to serve, a continued time for reflection to ensure that our products and services continue to support building inclusive and equitable communities and that access to capital for the underserved is attainable. I anticipate seeing an increase in our small business lending volume across more geographies and an uptick in interest rates come March 2022 – how many more we may see this year, we will leave that to the Feds!

 

Lauren Counts: Investment in Entrepreneurs of Color Will be a Priority

The past two years have taken a toll and challenges will continue to impact the people and businesses we serve in the form of rising rents and costs, childcare disruptions, and pressures on the health care system. Yet, our clients and partners working in the community will respond with the same tenacity, creativity and commitment they have demonstrated throughout the pandemic, designing new products and services, entering into mission-aligned partnerships, and expanding to new geographies where costs are a little more affordable. 

We anticipate continued prioritization of funds from corporate philanthropy and municipal and state governments for investment in entrepreneurs of color. Examples of programs we are working on in that vein include the Wells Fargo Open for Business and Nourish DC programs, where our partners are working together to channel more funding and resources to entrepreneurs so they can recover and grow.

 

Chuck Sinks: Maintain Your Business Gross Profit Margins  

Welcome to 2022! And the wild ride continues! COVID has become an ongoing issue we all need to adjust to. It’s amazing really how innovative and nimble small businesses have been in adapting to this tectonic disruption to our lives. But no business escaped unscathed. Sadly, there are countless casualties. Businesses and lives have been forever changed. But we continue to move forward! Just when it seems we are beginning to put the “business disruption phase” of COVID behind us, another macro-business risk shows up: inflation. 

Inflation is a noun we haven’t mentioned or talked about much over the past decade or so. It is a noun that is now front and center for all of us. Inflation means the purchasing power of every dollar we all have or acquire is eroding. Too many dollars are chasing too few goods and services…so everything will cost more. Quite simply, it will take more dollars to buy the things we need – inputs for your business (labor, materials, inventory) and all the things in your personal life (food, fuel, cars ++). To maintain your gross profit margins in your business, your prices cannot remain static…they too will need to increase to match or exceed rising input costs. 

Depending on which publication you read, inflation in 2021 and now 2022 is running “very hot” by historical standards; somewhere between 5% and 6.5% annually. Your 2020 dollar is now worth 95 cents, or less! Is your pricing keeping pace? Be sure to keep an eye on your gross profit margins in 2022..don’t let inflation silently erode your margins. Good selling!

 

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