The current economic climate, like Halloween, seems scary to many small business owners. The most important among their concerns is inflation. According to a recent Bank of America survey, inflation is the number one concern for 75% of business owners. Additionally, 88% say inflation and 80% supply chain issues continue to affect their operations and lead to price increases. Additionally, ongoing labor shortages mean labor costs are also rising as companies compete for talent.
Another source, the NFIB Small Business Optimism Index, found that 37% of small business owners said inflation was their number one concern in running their business, the highest level since the fourth quarter of 1979.
access to capital is another major concern.
Small business lending approval percentages are relatively flat and declined for large banks (over $10 billion in assets), which fell to 15.1% in August from 15.3% in July, according to the latest Biz2Credit Small Business Lending Index™ , which was released earlier this month.
Although approval rates at small banks improved to 21.5% in September, the number is still less than half of the pre-pandemic results in January and February 2020, before COVID shut down the economy. Similarly, institutional lenders approved 25.9% of loan applications in August, up slightly from 25.8% in July, but nowhere near the 66.5% of funding applications approved in February 2020.
With interest rates ever increasing, now is a difficult time for small businesses looking for growth capital. There is additional concern as many economists believe the central bank is likely to hike interest rates by another 75 basis points to curb inflation when the Federal Open Market Committee (FOMC) meets again on Nov. 1-2.
Women and minority entrepreneurs are concerned that they continue to face barriers to accessing capital. More than a quarter (29%) of women business owners surveyed by Bank of America said they don’t think they will ever have equal access to capital, while 40% of Black business owners and 27% of Hispanic business owners do said the same.
Minority business owners in the survey said they experience more difficulty accessing capital for their businesses than the national average, with 46% of Black and Hispanic business owners reporting that they have faced personal challenges. Expanding access to capital for women and minority entrepreneurs is critical to their ability to grow.
According to a report by Bloomberg this summer, there’s a 50/50 chance that the economy will slip into recession before the end of 2022. A study by Clarify Capital found that 71% of American small business owners believe a recession is imminent, and 70% of them fear their businesses will not survive a recession.
Because the Fed has been so aggressive in fighting inflation and most people have fallen, a recession is looming, companies in the Clarify Capital study reported that they are already planning for the recession. They expect to buy less, postpone renovations or investments (e.g. new appliances), and try to negotiate lower prices and increase marketing spend while reducing other costs.
A recession scares many small business owners because many of them have still not fully recovered from the financial setbacks caused by the COVID pandemic. While the economy has indeed been steadily recovering, a recession poses a serious challenge to countless small business owners across the country.
optimism on the horizon
Despite concerns about high gas prices, rising interest rates, ongoing supply chain issues and ongoing labor shortages, small business owners are forecasting a strong year ahead, according to Bank of America. Over the next 12 months, 66% of business owners expect sales to increase and 52% plan to expand their business – up from 37% this spring! 83% now plan to fund their business, and even with the possibility of a recession looming, 77% of entrepreneurs say their business is equipped to weather a recession.
It may be irrational exuberance, but in general, small business owners are actually optimistic about the future. Small businesses have shown their resilience during the pandemic’s crippling economic times, when millions of businesses have been closed for weeks, if not months. They survived and in many cases got stronger as a result.