Small Businesses Delay Purchases and Hiring Due to High Interest Rates

High interest rates are leading smaller businesses to lower their expectations.

 As the Wall Street Journal (WSJ) noted in a report Tuesday (Nov. 14), some business owners are holding off on expansions and equipment purchases, putting off hiring and accelerating their efforts to collect payments as interest rates remain at a 22-year high.

 The report cites figures from the National Federation of Independent Business showing that the average interest rate small businesses paid on short-term loans has been at 9% or higher for the past three months, up from 6.7% a year earlier and 4.6% in August 2021. 

 Among the businesses scaling back is Iowa’s 1-800-Tshirts, where owner Tom Rauen recently delayed the purchase of new printing equipment out of worries that the company would have trouble making loan payments in its slower months. 

 “It slows down our growth,” Rauen told WSJ. “When the cost of capital was lower, it was a little easier to take on a bigger risk and bite off a little more.”

 The WSJ said more than half of small-business owners surveyed said that higher interest rates had impacted operations, while another 19% said the rates would ultimately affect them.

 “Small businesses are generally in better financial shape than in times past when interest rates have risen sharply, but they still are financially fragile,” said Mark Zandi, chief economist at Moody’s Analytics.

 Among the troubles facing small and mid-sized businesses (SMBs) these days is access to credit, PYMNTS Intelligence has found.

 Recent data shows that just 47% of SMBs generating annual revenues of $10 million or less had access to business or personal financing as of July 2023. And 53% reported having “no current access to credit.” It’s a problem most acutely felt among the smallest companies surveyed, with yearly revenue of $150,000 or less.

 According to the “What’s Next in Credit: Why SMBs Prefer Corporate Credit Cards for Short-Term Financing” report, the lack of financing varies from market to market.

 That report showed that professional services and personal and consumer services sectors were less likely to have access to funding. In contrast, construction or utilities industry and hospitality firms have relatively higher access to financing.

 “Smaller SMBs have access to multiple sources of personal and business financing,” PYMNTS wrote. “These businesses use corporate cards the most often — but just slightly more than personal credit cards. Even so, the share that have access to or use corporate cards is small, as just 28% do so. Twenty-seven percent say the same about personal credit cards. Access to corporate cards varies substantially by industry, with rates low across all market sectors.”

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