May 30, 2023 - Economy

The small business squeeze

Illustration of Benjamin Franklin exiting the frame of the one hundred dollar bill.

Illustration: Maura Losch/Axios

Frustrated and angry, small business owners tell Axios they're losing trust in the financial system as banks become more tight-fisted.

Why it matters: Loan rejections and prolonged borrowing approvals have become the norm — squeezing small business growth and jeopardizing stability as the economy slows and the banking crisis injects more uncertainty.

State of play: Banks have grown more nervous about lending after the failure of Silicon Valley Bank and Signature Bank.

  • The jitters sit atop existing concerns about an economic downturn, and the effect that higher interest rates have on borrowers' ability to repay loans.

By the numbers: Roughly 47% of banks surveyed by the Fed after the seizure of Silicon Valley Bank and Signature Bank said they had tightened lending standards for small firms — those with annual sales of less than $50 million — during the first three months of the year.

  • That's up from about 22% last summer.
  • A vast majority (77%) of small business owners say they're now concerned about their ability to access capital, according to a Goldman Sachs 10,000 Small Business Voices survey, compared to a year ago when 77% said they were confident.

What they're saying: "We had so many banks offering to loan us money previously, including our own bank that we've had an established relationship with for years," Tamara Keefe, CEO of Clementine’s Creamery in St. Louis, tells Axios.

  • Keefe, who has been opening new locations, says she's been waiting seven months for approval on a bank loan that, in the past, would have taken about three months.
  • "I just don't feel like I can trust the bank [now]," she says about the drastically changed lending environment.
  • Schuyler Northstrom, CEO of Uinta Mattress in Salt Lake City, says banks and the Small Business Administration have been asking for "a lot more data" and scrutinizing projections more closely than before.
  • "We can't afford to ... wait and wait and wait [because] we don't have that deep bank account," says Northstrom.

The big picture: Businesses with fewer than 500 employees make up nearly all U.S. firms, and represent about 44% of GDP.

  • With fewer financing options available, such as selling stock, bank loans are a crucial lifeline to keeping small businesses operational and workers employed.

Go deeper: Policymakers say cautious credit conditions will put a brake on economic activity

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