Personal savings rate increase beneficial for small businesses needing loans, economist says

Local News

RIO GRANDE VALLEY, Texas (KVEO)  — While it’s no surprise people are spending less money this year due to the shutdowns and uncertainty brought about by the pandemic, there may be an upside. 

As the country awaits further COVID-19 relief funds, the personal savings rate increased by more than five percent — from 7.6 to 12.9 — from January to November.

“That means that people, for whatever the reason, are becoming future-oriented rather than present-oriented,” South Texas College Economics Professor Teo Sepulveda said. 

While this means less money going directly to businesses, Sepulveda says it isn’t all bad news.  

“Inside of the bank is very good for economy and society because banks have the capacity to start expanding credit,” he said.  

Sepulveda says any small business low on funds awaiting additional assistance from the federal government can increase their chances of survival in the meanwhile by applying for a loan with a strong business plan.  

“Small businesses should be having close conversations with any available bank and say, ‘can you guys please give us a line of credit? We know there are loanable funds available,’” he said. “People are saving. The U.S. central bank —federal reserve — is expanding.”  

He adds the interest may be slightly higher than what was available through CARES funding, but business owners should shop around.  

“That doesn’t mean the existing terms are bad,” Sepulveda said. “It’s just the other one was better because Congress was behind it. This will be just your own funds on the line.”  

And when a stimulus is passed, he says businesses can expect an additional boost as the unemployment rate is slowly returning to pre-pandemic levels of about 4%.  

The latest proposed $900 billion Coronavirus relief package has Congress’ approval, but has yet to receive the President’s signature due to what he calls a “measly” stimulus check.  

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