Can Small Businesses Still Borrow?

More than two in five (41%) small to midsize businesses are experiencing tighter lending standards today than they saw in early 2021, and one-quarter of those have seen credit tighten considerably.

This is the headline news from the Greenwich Market Pulse research released on Tuesday by Coalition Greenwich. The Greenwich Market Pulse is an ongoing research series focused on the banking relationships of companies with $500 million or less in annual revenue. The latest survey was conducted in March 2023 and included 576 respondents.

The executives who participate in Coalition Greenwich’s research have been feeling pessimistic for more than a year now. The Greenwich Optimism Index, which is based on the Market Pulse studies, has been negative ever since the Federal Reserve started raising interest rates in March 2022. This negative reading means that most of the businesses in the Coalition Greenwich research expect economic conditions to deteriorate going forward.

“Fueling the negative outlook are reports of poor sentiment among manufacturers, decreased demand from large customers, and concerns about weakening earnings,” says Chris McDonnell, head of community, commercial, and digital banking at Coalition Greenwich.

The latest Greenwich Market Pulse did find that, despite the overall pessimistic perspective, 30 percent of companies expect to increase their capital expenditures (capex) this year. Among those, 66 percent plan to finance those projects using cash or retained earnings. Another 20 percent expect to reduce their capex in 2023, and 73 percent of those companies are going to reduce their borrowing and rely more on cash. A full 15 percent of companies that expect capex to decrease also plan to fully suspend borrowing in 2023.

For examples of small to midsize companies that successfully leveraged the pandemic business environment to improve treasury operations, watch an on-demand Treasury & Risk webcast that explores how the small treasury teams at NWR, Inc. and TeamViewer achieved big results with their innovative, award-winning initiatives.

Coalition Greenwich also reports that the tight credit markets have not yet led most small to midsize businesses to seek out new lenders, but adds that the current environment presents an opportunity for private equity and other providers of credit. More than three-quarters (76%) of survey respondents claimed they are unlikely to switch to a non-traditional financial service provider or financial technology company. But 15 percent are somewhat likely and 9 percent are more likely than that to try an alternative to a traditional bank.

One other interesting data point is that 87 percent of the small to midsize business executives believe that real-time payments are at least somewhat important, with 33 percent believing they are very important today and 45 percent saying real-time payments will be very important in the next three years.