Main Street Monday – Increasing Interest Rates Pressure Small Businesses

July 3, 2023

Delaney Sexton
Contributing Editor

Main Street Monday – Increasing Interest Rates Pressure Small Businesses

“Tightening in both credit and private equity markets is creating challenges for many small business owners,” says Stephanie Sims, Founder of Finance-Ability and member of the U.S. Chamber of Commerce Small Business Council. “Rising interest rates make it more challenging for some entrepreneurs to qualify for financing, although I have seen several loan guarantee programs step up and assist some of these borrowers in securing funding.”

The MetLife & U.S. Chamber of Commerce Small Business Index rose from 60 in the first quarter of 2023 to 63.1 in the second quarter. This shows that “despite continued macroeconomic mixed signals,” small businesses remain confident about their business health and their day-to-day operations.

Nearly all small business owners (91%) across all industries share the sentiment that small businesses are the most vulnerable to rising interest rates, and more than half (52%) reported feeling strongly about this. In support of this, the frequency with which small businesses report rising interest rates as a top business concern increased roughly 7-8% from the first quarter of 2023 to the second quarter of 2023.

As a result of rising interest rates, half of small businesses had to put their plans for expansion on hold. Small businesses are also expressing concerns about interest rates making it more difficult to pay back their current loans with almost three in four small businesses sharing this worry. More than three-quarters of small businesses said that rising interest rates are making it harder to raise capital or financing for their business. Compared to last quarter, this is a 10% increase, and from a year ago, this reading increased by 16%.

Half of small businesses have had to take out a loan in the last year to cover inflationary costs on their business. When borrowing, 73% reported struggling to borrow from banks because of tightening credit standards. Small businesses are seeking out more sources of capital and financing. During the search for financing for their business, small businesses turned to:

  • Personal savings 71% of the time
  • Credit cards 67% of the time
  • Local banks or credit unions 59% of the time
  • Fixed-rate loans 41% of the time
  • Variable rate loans 26% of the time

Of those that used a variable rate loan, 53% converted it to a fixed rate loan.

MetLife & U.S. Chamber of Commerce Small Business Index