High Interest Rates Continue to be a Major Concern for Small Businesses

According to the third in a series of credit-focused surveys from the National Federation of Independent Business, 80% of small business owners accessing credit in the last three months reported high interest rates as their largest financing complaint, a significant increase from July (58%).

“More small business owners report that higher interest rates are impacting business operations,” Holly Wade, executive director of NFIB’s research center, said. “Even with financing concerns, small business owners have expectations for a solid holiday season but aren’t confident in their local or national economy going into the new year.”

According to the survey, 26% of small business owners borrowed or tried to borrow money for business purposes in the last three months. Of those borrowing, 8% of owners were very satisfied with the amount and terms offered for the financing received, a significant decline from July, when 32% reported being very satisfied.

Eighty percent of small business owners accessing credit in the last three months reported high interest rates as their largest financing complaint, a significant increase from July (58%). Meanwhile, 5% reported the amount of credit approved being too low as their largest complaint, and another 4% reported collateral requirements were too big. In addition, 4% reported repayment schedules were too short and 4% reported too much paperwork. Another 4% reported that the application, approval or closing process was too slow.

Twenty-one percent of owners reported that their major financing complaint had a significant impact on their business, while 35% reported a moderate impact and 44% reported a mild impact.

Holiday Sales

About one in five small business owners reported that they generally experience higher sales volumes during the holidays.

When asked about their sales volumes during this past Black Friday, Small Business Saturday and Cyber Monday, 17% reported strong sales volume, 35% reported moderate sales volume and 29% reported weak sales volume.

When asked about their holiday sales volume expectations, about a quarter (26%) anticipated strong holiday sales volume, 55% had moderate expectations and 20% had weak expectations.

Experience Accessing Financing

Fifty-five percent of owners accessing credit in the last three months reported that interest rates were a significant issue, while 30% reported that it was a moderate issue and 11% reported that it was a mild issue. Interest rates were not an issue for 4% of small business owners, a significant decline from 23% in July. In addition, the amount of approved credit was not an issue for 58% of small business owners.

Ten percent of owners reported that repayment schedules were a significant issue when accessing financing, while 62% reported that repayment schedules were not an issue. Seven percent reported that the paperwork requirements associated with accessing financing were a significant issue. However, the application, approval and/or closing process was not an issue for 64% of owners.

Reasons to Seek Financing

Twenty-nine percent of small business owners reported the main purpose they sought financing was to expand their business, while 26% reported they sought financing to meet operating and inventory expenses, 24% reported they sought financing to replace capital assets or make repairs and 8% reported another reason. Refinancing or paying down debt was the main financing purpose for 7% of owners.

Types of Financing

Among those small business owners who borrowed, more than half (56%) received a term loan. Twenty-eight percent received a line of credit, and 1% reported using factoring. Fifteen percent reported none of the above.

Among those who did not apply for financing in the last three months, 64% reported that the primary reason they did not was because they did not need financing, a stark difference from July 2023, when 80% reported as such. Fifteen percent reported that credit costs were too high and 2% did not think their application would be approved.

Financial State of Business and Economy

About 16% of owners evaluated the current financial state of their business as excellent, while 40% reported the current financial state of their business as good and 35% reported it as OK. Only 8% reported the current financial state of their business as poor.

When asked about the current state of their local economy, only 2% of owners described it as excellent, 21% reported it as good, 55% reported it as OK and 22% described it as poor.

When asked about the current state of the national economy, 67% described it as poor, up nine points from July 2023. Zero percent described it as excellent, 5% described it as good and 28% reported it as OK.

As for when the U.S. economy will enter the next recession, more than half (58%) of small business owners think the U.S. is already in a recession. Fifteen percent think the next recession will start in the January to March period. Twelve percent believe a recession will occur in the April to June period, while 7% expect it to occur in the July to December 2024 period and 9% expect it to occur in 2025.