Small to mid-sized businesses (SMBs) are essential to the economy. Main Street SMBs, however, encounter barriers to financing, from limited access to excessive costs to eligibility hurdles.
These obstacles can vary sharply by factors such as the business’s location or revenue. Understanding these disparities sheds light on the financing challenges SMBs face and how these hurdles impact their growth potential.
PYMNTS Intelligence data explores key credit and financing issues faced by SMBs. Our findings detail the economic realities affecting small businesses across the country.
Nearly Two-Thirds of SMBs Lack Access to Credit Cards
Most SMBs do not have access to credit cards. Just 37% have access to any credit cards, with 32% having access to business credit cards. In other words, roughly 5% of Main Street SMBs have to rely exclusively on personal credit cards to fund their business.
The mom-and-pop shops with the most access to credit cards are those in urban areas and those with higher revenues. For example, 42% of SMBs in large cities have access to credit cards, versus 26% of those in rural areas. These urban SMBs’ credit access is 61% greater than that of rural SMBs.
The disparity is even more stark between higher- and lower-revenue SMBs. Among firms generating $1 million or more in revenue annually, nearly half have access to credit cards. Conversely, just 25% of those with annual revenues of $150,000 or less say the same. Consequently, higher revenue Main Street SMBs are 82% likelier to have credit card access than the lowest revenue SMBs in our study.
This wide discrepancy suggests how strongly credit card access and the amount of revenue a business generates are linked. However, these findings do not clarify whether there is a causal relationship in either direction.
Relatedly, firms with rising revenues are somewhat likelier to have credit card access than others. Forty percent of firms with increasing revenues reported having access to credit cards. Meanwhile, 35% of those with stable revenues and 34% of those with decreasing revenues said the same.
Higher-Revenue SMBs Are Likeliest to Use Financing as a Strategy, Not a Necessity
Among SMBs that have access to financing, more use it out of necessity than as a deliberate strategy. Thirty-seven percent use financing out of necessity, and 35% use it more strategically. Meanwhile, 29% are split, with their use of financing roughly equally divided between strategy and necessity.
SMBs with higher revenues are the most likely to utilize financing as a deliberate, strategic choice. This may be because they are more likely to be on stable financial footing. Nearly half of SMBs generating annual revenues of $1 million or more use financing primarily as a strategy. Meanwhile, just 23% of firms generating less than $150,000 say the same. In fact, 52% of lower-revenue SMBs use financing mostly as a necessity.
Notably, however, SMBs with rising revenues are less likely to use financing strategically than those with declining revenues. While 30% of SMBs with increasing revenues and access to financing used it strategically, 42% used it out of necessity. In contrast, 42% of these businesses with decreasing revenues use financing mostly as a strategy, and 39% use it more out of necessity.
Businesses with declining revenues may view financing as a key tool to reverse their downturn. They may use it in an effort to stabilize operations, invest in new opportunities or restructure their business models. For these businesses, financing could be a critical resource for responding to market pressures.
Overall, these findings suggest that financing is primarily a tool of survival for many SMBs. This is especially true of those with limited means. While higher-revenue businesses may leverage financing strategically to drive growth, smaller and more financially constrained businesses often lack this flexibility.
Fees and Interest Rates Keep Many SMBs from Using Credit
Among Main Street businesses lacking access to financing, the most common reason is cost. Thirty-five percent cited fees and interest rates as a reason for going without credit. A similar share cited a lack of necessity. Thirty-four percent avoid credit because they do not need it. Meanwhile, nearly one-fifth of SMBs without access to financing said the eligibility criteria was too difficult to meet.
Notably, SMBs in rural areas were the most likely to cite lack of necessity as their reason for refraining from using credit. Among these, 44% cited not needing it as a reason. This figure is well above the 34% share of firms in large cities that said the same. This disparity could perhaps be because of the lower cost of operating in the country versus in a city. Yet SMBs in rural areas are also most likely to cite difficulty meeting eligibility criteria and debt-related issues as reasons.
Lack of choice also played a role in their decisions. Nearly one in 10 SMBs without financing access said they did not use credit because there were not enough options offered as part of the payment process.
These insights reveal the barriers Main Street SMBs face in accessing credit, with high costs being a primary deterrent. While many rural businesses operate without financing, they are most likely to cite difficulties meeting eligibility criteria. Credit access disparities reflect not just differences in need but also structural obstacles.
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