Last Updated on November 26, 2023 by BVN
S. E. Williams
Survey data showing credit crunch comes as Federal Reserve considers a proposed regulation that could make obtaining loans more expensive and more difficult.
A credit crunch is impacting small business owners nationwide hindering their growth and causing some to say that if it continues, they’ll be forced to close altogether.
A new, nationwide survey from Goldman Sachs, 10,000 Small Businesses Voices, shows 78% of small business owners are concerned about their ability to access capital and 53% say they can’t afford to take out a loan given current interest rates. 85% say if access to capital continues to tighten it will impact their growth forecast. Of those that say their growth forecast will be impacted, 67% will halt expansion plans if credit continues to tighten, and, alarmingly, 21% would close their business if the credit market continues on this trajectory.
The access to capital challenges are even more stark for minority-owned businesses–especially those that are Black owned.
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.
Consider this: While 43% of Black business owners have applied for a loan or line of credit in the past year–versus 30% of White small business owners–only 26% reported receiving all of the funding they requested–versus 51% of White small business owners.
While 78% of all small business owners said it was difficult to access capital, the challenge is more pronounced among minority small business owners. Among small businesses, 81% of Hispanic owners and 85% of Black 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 Apryl Stewart, Founder and President of Skyview Concessions in Torrance, CA. “Now, even after 11 interest rate hikes since March 2022, the Federal Reserve is pushing a new regulation, which could make loans more expensive and more difficult to obtain. This latest survey data makes it perfectly clear that we need regulators to stop the squeeze on small businesses.”
On top of being 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:
Nearly a third (31%) of small business owners say 2023 has been the most difficult year for business while only 6% more of those surveyed said 2020’s pandemic year was more difficult (37%).
Thirty-three percent 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. Meanwhile, among small businesses with outstanding loans, 35% have a variable interest rate. Eighty-eight percent of those with variable interest rates have seen their interest rates increase, with 58% saying the increase has been between 3-10%.
The survey’s findings come after an announcement last week that small business owners across the country are joining a diverse group of stakeholders including lawmakers from both sides of the aisle, the NAACP, U.S. Chamber of Commerce and the Urban League, in mobilizing to raise concerns about the Federal Reserve’s proposed regulation, formally called “Basel III Endgame.”
“Now, even after 11 interest rate hikes since March 2022, the Federal Reserve is pushing a new regulation, which could make loans more expensive and more difficult to obtain. This latest survey data makes it perfectly clear that we need regulators to stop the squeeze on small businesses,” Stewart declared.
In July 2023, US regulators proposed the Basel III Endgame rule, which will require large banks and most regional banks to further increase the amount of capital they hold by an estimated 20% on average. The According to stakeholders the potential negative impacts of this rule on small businesses are many.
Reduced access to capital
If capital requirements for banks are significantly increased as proposed, they will be pressured to offer less financing to borrowers or offer it at a higher cost. The smaller borrowers are likely to be squeezed out – including small businesses, households, and consumers.
Further disadvantage minority-owned small businesses
Minority-owned businesses already face significant challenges accessing capital. According to the Goldman Sachs 10,000 Small Businesses Voices survey, 81% of Hispanic small business owners and 85% of Black small business owners are concerned about their ability to access capital. This proposal would make it even harder for minority-owned businesses to access loans and credit.
More expensive borrowing
Many banks already consider small businesses to be bigger risks. The capital proposal will further exacerbate the problem, making it more expensive for banks to lend to small businesses.
A nationwide campaign titled, Tell the Fed to Stop the Squeeze on Small Business,launched recently with two new digital advertisements, and will continue in the coming weeks with added paid media, as well as other activations of small business owners to ensure policymakers understand the devastating impact of the proposed regulation.
A significant majority, 87% of survey respondents said it is important for their elected officials in Washington to weigh in with the Federal Reserve regarding their proposed regulation.
The nationwide survey of 1,240 small business owners was taken October 9-12, 2023. Respondents came from 48 U.S. States, including California, plus Puerto Rico and Washington, D.C. The full survey results can be viewed here.
Goldman Sachs 10,000 Small Businesses Voices, which in April marked its three-year anniversary, builds on 10,000 Small Businesses and organizes program participants to advocate for policies that matter to them. Follow this link to learn more.