Credit Cards Fuel Small Business Lending

Small businesses reported that major sources of credit including credit cards and bank loans drew back sharply last quarter, according to results from the Q3 Private Capital Access Index (PCA Index) from Dun & Bradstreet and Pepperdine Graziadio Business School.

More small businesses reported they were unable to secure credit from 14 of 17 lending categories measured including bank loans, credit cards (personal and business), and credit unions.

The number of small businesses that were able to secure a loan from a traditional bank declined 41.5% quarter over quarter, with 31% of businesses reporting that they were successful securing a bank loan as a source of funding compared to 53% the previous quarter. Trade credit – a common lending practice in which businesses agree to exchange goods without paying cash up front and the supplier is paid at a later scheduled date – also dropped significantly from 65% of business reporting success in Q2 to 43% reporting success in Q3. Successful loans from credit unions also dropped 39.2% from 51% of small businesses reporting financing success in Q2 to 31% reporting success in Q3 2019.

Of the three categories in which small businesses reported success, the most popular – friends and family – climbed modestly from 61% in Q2 to 63% in Q3.

Looking ahead at likely sources of funding, small businesses said credit cards would be a likely source with thirty-five percent of small business in Q3 saying they would use a personal credit card for future credit compared to 21% in Q3 2018. Fifty-four percent (54%) in Q3 said they would use business credit cards for future credit compared to 42% in Q3 2018.

“Small businesses proved their resiliency rebounding from the Great Recession. However, small business lending, which was more accessible in the last year, appears to be waning,” said Dr. Craig R. Everett, director of the Pepperdine Private Capital Markets Project. “It may take another quarter or two to determine if this lender drawback is temporary or foreshadowing another broader recession.”

“While the prognosis for global economic growth in the final quarters of 2019 remains subdued, small businesses seem to be generally unimpacted – with a significant portion quoting expansion plans in the next six months,” said Nalanda Matia, Sr. Director Economic Solutions at Dun & Bradstreet. “However, the fact that these businesses are finding it increasingly difficult to raise capital despite falling rates remains a cause for concern and will shape growth prospects in the near term.”

A significantly larger number of small businesses reported that the current business environment is restricting their business in Q3. Sixty percent (60%) said the business environment was impacting growth opportunities compared to 47% in Q2. Fifty-four percent (54%) said the business environment was impacting their ability to hire new employees in Q3 compared to 40% in Q2.

Small Business Unconcerned about U.S.-China Tariffs or Federal Interest Rate Hike

When asked if U.S.-China tariff negotiations would impact their business in the long term, two-thirds (66%) said they don’t expect an impact. Twenty-seven percent (27%) said it would impact prices in consumer goods, 6% said it would bring their business to a stand-still and 1% said it would impact their ability to hire.

When asked if a Federal Interest Rate hike would impact their business in the long term, half (48%) said they don’t expect an impact. Twenty-two percent (22%) said it would impact their ability to secure contracts and expand in new markets, 22% said it would impact their ability to raise capital and 8% said it would impact their ability to hire.

The PCA Index is a quarterly indicator produced by the Pepperdine Graziadio Business School and Dun & Bradstreet. The Q2 2019 Index report was derived from 848 completed responses collected between July 18 – Aug 2, 2019.

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