US Small Businesses Lean on Credit Cards Amid Inflation and Funding Challenges

Intuit’s inaugural 2023 QuickBooks Small Business Index Annual Report brings to light small businesses’ profound challenges in the US, Canada, and the UK. The report analyzes the effects of macroeconomic pressures’ effects on small business operations, job creation, and their quest for funding, such as inflation and soaring interest rates. This report is carried out in collaboration with renowned global economist Professor Ufuk Akcigit.

Small businesses, the backbone of economies worldwide, are feeling the weight of financial challenges now more than ever. With this report, Intuit goes into the current state of these businesses across the three major regions.

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  1. Dependence on Credit Cards: The data underscores an alarming trend – small businesses heavily rely on their credit cards amidst the current economic climate. Post-pandemic credit card spending by these entities has shot up by an average of 20%. However, this rise in spending is accompanied by a significant 26% increase in monthly credit card payments, inclusive of interest charges.
  2. Impact on Employment: While there’s been a general uptrend in employment across the US, Canada, and the UK, small business employment remains vulnerable. The first five months of 2023 saw a dip in the US’s small business employment rates. Canada and the UK experienced similar downturns over the course of eight months.
  3. Flourishing Solopreneurs: While there’s a surge in non-employer businesses, indicating a vibrant entrepreneurial spirit, there’s a concerning decline in the number of these enterprises creating jobs.
  4. Access to Funds: Roughly 50% of small businesses in the observed regions rely on self-funding by owners. Especially in the US, new and minority-owned businesses continue to grapple with significant funding challenges.
  5. The Inflation Conundrum: Despite a year-on-year decline, rising costs due to inflation remain the top challenge for these businesses across the regions.

For US small businesses specifically:

  • State of Hiring: January 2023 saw 12.8 million employees in US small businesses (1-9 employees). This number dwindled to 12.7 million by March but made a comeback, reaching 13.1 million by September 2023.
  • Contributions to the Economy: Small businesses form the heart of the US economy, with 98% of all US businesses falling into this category. Remarkably, these businesses employ 36% of the entire US workforce.
  • Financial Health: Average monthly credit card spending by US small businesses currently stands 20% higher than pre-pandemic levels, which translates to a sizable $3,000 per business.
  • Digital Advancement: Businesses employing digital tools extensively (in eight or more areas) report 55% revenue growth and 20% workforce growth. In contrast, those limiting their digital tool usage to just one or two areas show only 31% and 7% growth, respectively.

Professor Ufuk Akcigit highlights the crux of these findings, pointing out the concerning inflationary environment. He remarks, “These adverse conditions have compelled business owners to tap into their savings and rely heavily on credit cards, where monthly credit card spending has surged by an average of 20% compared to pre-pandemic levels. When coupled with the increased interest payments on these debts, this translates to thousands of dollars in additional costs each month. Consequently, these shifts are exerting a detrimental effect on small business job creation.”

To help steer these businesses and their advisors in the right direction, Intuit has curated actionable recommendations based on the report’s findings. Policymakers, accountants, and small business owners can leverage these insights for fostering an environment conducive to growth and resilience in these challenging times.

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  1. Insightful post! The discussion on how small businesses are navigating inflation and funding challenges by leveraging credit cards is spot on. It’s a testament to the resilience and adaptability of entrepreneurs in the face of economic hurdles. The article provides a valuable perspective on the strategies businesses are employing to stay afloat. Here’s to hoping for smoother financial waters ahead for small enterprises! 💳💼

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