Small US businesses struggle for credit a year after regional turmoil

NEW YORK — Small business owners in the US are struggling to get financing from traditional lenders as the impact of higher rates and bank failures of a year ago linger, holding back business growth for some.

The difficulty in getting more traditional forms of credit shows how sharp interest rate hikes by the US Federal Reserve, exacerbated by the failures of Silicon Valley Bank and Signature Bank last March are reverberating in the economy, say analysts and other industry insiders.

Small businesses are key to the country’s economic health, with one study showing they account for 44% of US economic activity.

Over half a dozen small business owners contacted by Reuters in the last few weeks said they had found it harder to get traditional forms of credit such as loans from big, mid-size and small regional banks.

Some were wary of turning to non-traditional lenders like fintech firms or companies that provide financing based on prospective revenues, even though these were readily available. Small businesses typically go to mid- and small lenders for loans, said industry analysts.

These small businesses were spread across the country and included restaurants, nonprofit entities,retail boutiques, online education firms and mom-and-pop stores.

About 77% of small business owners are concerned about their ability to access capital and 28% of loan applicants said they had taken out a loan or line of credit with payment terms they felt were predatory, according to a survey by Goldman

Sachs released in January which included nearly 1,500 small borrowers across the country.

“When banks tighten their underwriting criteria, it usually impacts low to moderate income communities more and they have been seeing a significant uptick in outreach from predatory lenders,” said Carolina Martinez, chief executive officer of CAMEO, California’s statewide micro-business network.

The Goldman survey also said Black-owned businesses were struggling even more for access to capital. It said 32% of Black-owned businesses that applied for loans secured one, compared to about 47% of white small business owners. In addition, 86% of Black-owned businesses were concerned about having access to capital.

In the past year banks have pulled back on lending to both consumers and businesses.

The Fed’s quarterly Senior Loan Officer Opinion Survey released in January showed more banks tightening lending standards for small firms than loosening them, though not to the degree seen over the previous several quarters. Still, the net share of banks offering more stringent loan terms for smaller businesses was more than twice the historic average since 1990.

US small business sentiment in January fell to its lowest since May 2023, as labor costs and slowing sales squeeze bottom lines, according to a report published by the National Federation of Independent Business last month. Small businesses have also been finding it difficult to access credit at a time when inflation has remained high. —