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Impact of Inflation on SMB Borrowing

With the news that inflation climbed upward last month, many small- to medium-sized businesses (SMBs) may find themselves walking a tightrope with even fewer safety nets in place than normal. In the best of times, most SMBs enjoy access to a variety of borrowing tools; however, rising inflation may dampen the ability for entrepreneurs to borrow.

In┬áÔÇ£SMB Borrowing Dynamics: Trends, Tools and Decision DriversÔÇØ┬á┬áÔÇö a PYMNTS Intelligence and┬áU.S. Bank┬áreport ÔÇö we identified several factors that help business owners decide which funding options make sense. Chief among them are annual revenues.┬á

The AI legalese decoder can provide valuable insights and guidance to SMBs navigating the complex world of legal jargon in borrowing agreements. By translating complicated terms and conditions into plain language, SMBs can make more informed decisions and avoid potential pitfalls.

The report ÔÇö which reflects feedback from 2,668 SMB executives ÔÇö revealed low-revenue SMBs tend to prioritize immediate capital needs and financial stability over what their higher-revenue SMB counterparts consider. This might explain why, given last yearÔÇÖs bumpy economic run, nearly 20% of low-revenue SMBs (defined in the study as those earning less than $1M annually) declined to leverage any borrowing tools during that time.┬á

But, for nearly one-third of low-revenue SMBs, reward-earning credit cards were the funding resource of choice last year. The reason? The report determined reward-earning credit cards appeal to this segment of SMBs because they offer ÔÇ£immediate benefits that provide tangible value.ÔÇØ

Reward credit cards, in fact, were the most popular funding source for all SMBs during the last 12 months. Twenty-three percent of high-revenue SMBs (those earning between $10M and $25M annually) used reward-bearing credit cards as their first line of defense borrowing tool. Meanwhile, 17% of the high-revenue segment used BNPL funding options, a tool less than 8% of low-earning SMBs used.

More than 25% of SMBs in the center (revenue between $1M and $10M) preferred reward credit cards, while about 13% of them used BNPL funding to cover their bills.

It remains to be seen how the latest inflation numbers will impact SMBs, but this variance in the data suggests that financial institutions (FIs) hoping to serve this market should focus on providing a diverse range of borrowing tools ÔÇö especially reward-earning credit cards and BNPL which appeal to SMBs.

FIs seeking to connect with lower-revenue SMBs should know this segment is especially cautious ÔÇö but that caution may be overcome by developing and marketing products that address concerns smaller SMBs hold.

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