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Small businesses are bullish about their prospects and place a high degree of trust in their primary bank, but a surprising number, about one in four, report being cash- or capital-constrained, according to a new survey by American Banker.
The research, scheduled to be released Oct. 31, included responses by 300 small-business owners. It indicated more than a third of smaller firms, those with two to nine employees, were experiencing cash issues. The level of concern was lower among more sizable small businesses but was still significant. The average for all respondents was 27%.
The situation could point to an opportunity for banks and other small business lenders. American Banker’s survey found the majority, 81%, of small businesses reported being profitable, with an even higher proportion, 88%, feeling very optimistic or somewhat optimistic about the future of their companies.
Another recent survey, the National Federation of Independent Businesses’ monthly optimism index, was more mixed. The index rose three-tenths of a percentage point in September, reaching a 91.3 score, though the figure remained well below the 50-year average score of 98. NFIB released its results Tuesday.
But American Banker’s results align closely with a
That growing confidence is translating into increased demand, Adam Stockton, head of retail deposits at the New York-based bank data firm Curinos, said Thursday in an interview. “We’ve seen an increase in applications across most small business loan and line products,” Stockton said, citing lower inflation and falling interest rates as two of the trend’s drivers.
The cash constraints small business owners bemoaned in American Banker’s survey may be traced in part to the fact demand for credit is outstripping the supply, according to Stockton. “Businesses are maybe a little more willing to act on that optimism more quickly,” he said. “Banks are, perhaps understandably, a little more conservative.”
“There are going to be opportunities for banks to expand lending, particularly where you can find pockets that are lower risk, or for banks that believe more strongly we’ll get there from an economic perspective,” Stockton said. “If we do, those that [moved] early, we’ve seen in the past, have a meaningful advantage.”
Small-business owners exhibit high levels of trust in their primary banking partner, American Banker’s research found. In most cases, 68%, retail banks controlled that primary relationship, yet the survey indicated most businesses maintain relationships with additional lenders, including fintechs and credit unions. That leaves the door open for other types of institutions to chip away at banks’ dominant position in the small business sector — especially if they’re able to serve start-up or early-stage small businesses first.
“There is tremendous loyalty in most businesses to the institution that first gives” their initial loan, Stockton said. “Often, receiving that credit is what makes the difference between going under or surviving. It can be the difference between my ability to grow or just squeak by.”
According to Stockton, the biggest application increases Curinos is tracking come from Small Business Administration loans. SBA’s 2024 fiscal year ended Sept. 30. The agency’s flagship 7(a) loan guarantee program