Small business owners feeling credit crunch

A survey by Goldman Sachs quizzed small businesses owners, who reported serious concerns that the nationwide credit crunch is hindering their growth. Some expressed fear that they would have to close up shop.

According to the survey, 78% of small business owners are concerned about their ability to access capital, and 29% say they can’t afford to take out a loan given current interest rates. In addition, 85% say that if access to capital continues to tighten it will impact their growth forecast. Of those, 67% will halt expansion plans if credit continues to tighten, and 21% would close their business if the credit market continues on this trajectory.

The challenges are even more stark for minority-owned businesses. Black small business owners have a higher application rate for business loans or lines of credit but have a much lower rate of receiving the full funding requested compared to their white peers.

While 43% of Black business owners have applied for a loan or line of credit in the past year compared to 30% of white small business owners, only 26% reported receiving all of the funding they requested, and 51% of white small business owners received full funding.

While 78% of all small business owners said it was difficult to access capital, the challenge is more pronounced among minority small business owners. According to the survey, 81% of Hispanic small business owners and 85% of Black small business owners are concerned about their ability to access capital.

“Small business owners are the backbone of our economies, but the ongoing credit crunch means that capital to fund expansion plans, reinvest in our companies, or hire more workers is unaffordable and inaccessible,” said Allison Dunn, owner of Hibiscus Brew in Brooklyn.

On top of being deeply concerned about their ability to access capital, small business owners are concerned about the overall business climate and the state of the U.S. economy.

Thinking about the past four years, nearly a third (31%) say 2023 has been the most difficult year for business. Only 6% more said 2020’s pandemic year was more difficult (37%). In addition, 33% of small business owners applied for a new business loan or line of credit in the past year with 65% of those who have applied stating they found it difficult to access affordable capital.

According to the survey, 64% of small business owners reported having outstanding loans and/or lines of credit.  Of those, 35% have a variable interest rate, and 88% of those with variable rates have seen their interest rates increase with 58% saying the increase has been between 3-10%.  Compared to three months ago, 46% believe the economy has gotten worse.

A significant majority of respondents (87%) said it is important for their elected officials in Washington to weigh in with the Federal Reserve regarding their proposed regulations. The proposals would change the risk-based capital framework for firms with at least $100 billion in total assets and increase the overall capital requirements for large banking firms by an estimated 16 percent.

The nationwide survey of 1,240 small business owners was taken October 9-12. The full survey results can be viewed here.