Businesses Start to Feel Credit Pinch

Businesses are reportedly finding it increasingly difficult to access credit.

The trend could lead companies to reduce their investments and slow their growth, Bloomberg reported Friday (April 21).

For small businesses, it’s more difficult than it’s been in a decade to borrow. Last month’s turmoil around regional banks has only increased this challenge, as the banks have become more cautious about lending because they are worried about funding and deposits, according to the report.

In addition, there has been a threefold increase in corporate debt trading at distressed levels, and the number of bankruptcies among businesses with assets of at least $10 million has risen, particularly in construction, healthcare and retail, the report said.

Beyond that, there has been a rise in bond and loan defaults that will only continue with tighter lending standards and higher interest rates. Some big banks have been setting aside more funds to cover bad loans, per the report.

While some of this tightening of lending standards and reduction of lending is intentional — as the Federal Reserve has ended the easy-money policies — these trends have deepened concerns that the Fed has increased interest rates too much, causing a pullback in lending that could lead to a recession, according to the report.

The National Federation of Independent Businesses (NFIB) reported April 11 that small business owners are feeling fairly pessimistic about the future as they contend with trouble borrowing, inflation and difficulties finding workers.

The organization found in a survey that 26% of small business owners said they paid a higher rate on their most recent loan, 9% said they had more trouble landing their last loan than in past attempts, and 3% said financing was their top business problem.

PYMNTS research has found that only 26% of Main Street small- to medium-sized businesses (SMBs) have access to enough funding to stay open for more than 60 days in the event of a cash flow shortfall.

Among the rest of these SMBs, 57% said they have only enough to operate for 60 days or fewer, and 17% have no access to funding at all, according to “Main Street Health Q1 2023: Using Finance to Ease Recession Fears,” a PYMNTS and Enigma collaboration.