Higher personal savings rate is good for small businesses in need of loans, economist says

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

As the country waits for new COVID-19 relief funds, the the personal savings rate has increased by more than five percent – from 7.6 to 12.9 – from January to November.

“It means people, for whatever reason, are looking to the future rather than the present,” said Teo Sepulveda, professor of economics at South Texas College.

While that means less money going directly to businesses, Sepulveda says it’s not all bad news.

“The inside of banking is very good for the economy and society because banks have the ability to start extending credit,” he said.

Sepulveda says any cash-strapped small business waiting for additional help from the federal government can increase its chances of surviving in the meantime by applying for a loan with a solid business plan.

“Small businesses should have close conversations with any available bank and say, ‘Can you guys please give us a line of credit? We know there are loanable funds out there,'” a- “People are saving. The US central bank — the Federal Reserve — is expanding.”

He adds that 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 conditions are bad,” Sepulveda said. “It’s just that the other was better because Congress was behind it. It’s only going to be your own funds at stake.”

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

The latest proposed $900 billion coronavirus relief package has been approved by Congress but has yet to receive the president’s signature due to what he calls a “miserable” stimulus check.

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