While many small businesses remain eager to hire, they may find debt capital tough to come by if they need it to pay for workforce expansion, according to a pair of recently released surveys of business conditions.
Bank of America
"That's a significant uptick," said Sharon Miller, the Charlotte, North Carolina-based BofA's president of small business and head of specialty banking and lending. "I'm hearing in the market when I sit down with clients that hiring is their biggest issue — outside of inflation."
But the BofA survey also highlighted some significant economic concerns.
Not surprisingly, given that the Federal Reserve has hiked the federal funds rate 10 times since the start of 2022, 67% of the business owners BofA surveyed are worried about interest rates. That's up 10% since last year. Those concerns produced a split opinion on credit: 33% said the rising federal funds rate, which climbed to 5.25% earlier this month, has made it less likely they'll seek financing, compared to 30% who said it's increased the likelihood.
Inflation, as Miller noted, was the number one issue identified by the surveyed business owners, with 79% expressing anxiety.
Businesses that do seek credit are likely to find the marketplace less welcoming, as depository lenders appear to be tightening standards and rejecting more applications.
According to Biz2Credit, the community bank loan approval rate slipped to 18.7% from 19.1% in March. Credit unions' loan approval rate was slightly higher at 19.8%, but still down from 20.2% in March. The April loan approval rate at big banks fell to 13.5%, down from 13.8% in March, Biz2Credit found.
For banks, at least part of the drop-off in loan approval rates can be attributed to the March failures at Silicon Valley Bank and Signature Bank, as well as
"Other midsize and regional banks may also be in trouble as business accounts continue to withdraw their money and shift it to big banks or money market accounts," Biz2Credit CEO Rohit Arora said in a press release.
"These developments hurt the banks' ability to lend to small businesses," Arora added.
Biz2Credit's results are in line with a Federal Reserve survey released Monday that found
BofA continues to extend credit, though it's focusing on industries that are "maybe a little bit more resilient, or not as impacted by discretionary spending," Miller said. "You think about dentists, doctors, veterinarians. … They're necessary services. You have to have them, whereas some of these discretionary businesses may struggle a little bit more."
BofA is forecasting a mild recession beginning in the third quarter, according to Miller, but she expressed confidence in the small business sector's ability to ride out tough times. Indeed, 48% of the business owners that participated in the BofA survey, which was released April 27, said they planned to expand in the next 12 months, up from 37% a year ago.
"There's all sorts of different opinions about what will happen and the [business] environment," Miller said. "What we do hear in the survey is business owners are prepared to weather the storm."
