NFIB survey highlights difficulty in small firms accessing a loan last month

More American small businesses are reporting having greater difficulty getting a loan in March after multiple bank failures led to a further tightening of credit conditions.

A survey from the National Federation of Independent Business (NFIB), which was released on Tuesday (April 11), showed that a net nine per cent of owners who borrow frequently reported that financing was harder to get compared to three months earlier. This is the most recorded since December 2012.  

The same number of small businesses are expecting tougher credit conditions in the next three months, matching the highest level in a decade.

“Small-business owners are cynical about future economic conditions,” declared NFIB chief economist, Bill Dunkelberg in a statement, adding “there are major uncertainties ahead, most immediate is concern that a banking crisis could develop”.

The collapse of four banks in March, most notably Silicon Valley Bank and Signature Bank, prompted many lenders to tighten standards on business loans.

“That’s made it even more difficult for smaller firms to borrow, compounding what was already a tough financing environment after a year’s worth of interest-rate hikes from the Federal Reserve,” wrote Bloomberg.

Deteriorating outlook for sales

The dimmer news on credit, along with a deteriorating outlook for sales and expansion plans, helped drive the NFIB’s small-business optimism index down 0.8 point to a three-month low of 90.1 — well below pre-pandemic levels. Some 26 per cent of owners, who borrow said they paid a higher interest rate in March compared to three months earlier, the biggest share since 2006.

Even though credit is getting a bit more difficult, the survey results carried by Bloomberg ranks well below inflation and the quality of labour as the single biggest problem for small businesses. The share of owners, who say they believe the next three months will be a good time to expand fell to the lowest since 2009, the report showed.

Firms also dialed back capital spending plans. The survey revealed that one in five owners expect to invest in equipment or structures in the next three to six months, the smallest share in two years.

Companies scaled back hiring plans and compensation as well. The survey also showed a net 15 per cent said they expect weaker sales in the next three months, the largest share since August.