Across America, Small Businesses Are Scrambling to Access Working Capital

By Matthew Elling
Co-Founder and Consultant at Line of Credit Depot
January 17, 2023

As the inevitable recession looms, small business owners are learning that banks and private small business lenders are pulling back on their credit facilities. Higher interest rates are hurting small businesses and their ability to repay and access banks and private debt according to the Fed's plan to smoulder runaway inflation.

Reports coming from small businesses are saying less ‘cash flow comfort’ is a result of being tied to inflation. As the dollar spending power decreases the lower consumer spending could increase the already steadily declining small business owner sentiment.  Small business owners have not faced lending costs this high in years. It is unlikely that the Fed will reverse its interest rate hikes, as inflation is worse than predicted.

According to CNBC’s surveying of economists and investment managers, the fed is predicted to reach peak rates of above 4% and hold those rates through 2023. From this it is implied that there will be at least two more rate hikes in November and December, for a total of at least 75 basis points more, then including the latest hike, 150 basis points in total from September through the end of the year. This will be an uncomfortable change for small business owners.

‘The majority of small business owners that are applying for credit, state that funds are needed specifically for working capital’, explains CEO of Iron Capital Equities, Matthew Elling.

‘Promptly after the pandemic, the main reason for capital requests was to hire more employees and restart businesses. In Q3 and Q4 2022, the main reason businesses applied for credit was to bolster low cash reserves, due to the high cost of operations and lower revenues.’ Now smaller businesses are feeling cash flow pressure this quarter.

From this small business owners are growing anxious about the future.

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