SMBs now have concerns over cash flow and higher borrowing rates, awaiting full downturn
While interest rates have risen to counter inflation, small businesses across the country have been trying to gauge the impact. CBIZ, Inc., a top provider of financial, insurance and advisory services, surveyed 902 small businesses to catch their pulse of the economy that revealed 67% of SMBs are expecting an economic downturn.
CBIZ released the results of its Q3 2023 Main Street Index that also showed that most businesses have concern about cash flow and higher borrowing rates.
Anna Rathbun, chief investment officer of CBIZ Investment Advisory Services, describes the factors that are impacting small businesses, stating, “Cash flow is the lifeblood of any business and is what stands between growing and going bankrupt. Similar to how consumers are feeling the pinch, in part due to running out of stimulus and the resumption of federal student loan payments, PPP funding for small to mid-sized businesses is running dry.”
Survey respondents indicated that 65% of businesses felt moderately to very confident that they have sufficient cash flow to weather a down market or other market disruption, with 35% wavering or having no confidence.
The report highlights the challenge that small businesses face coming out of the pandemic. Having faced labor shortages and increasing their hiring, some now must deal with having exceeded their labor needs as the economy weakens.
Other key results from the survey:
Product and service prices continue to rise due to inflation or inventory levels: 57% of companies raised prices in Q3, as they did in Q2, but sharp price increases are lessening
Lower Utilization of full workforce: Almost 30% of SMB’s shared they are not fully utilizing their workforce, while over 20% are retaining their underutilized workforce in the event of future needs.
Layoffs are up: 18% of SMBs reported layoffs this quarter, just two percent higher from Q2 but almost seven percent higher from Q1
With the Fed raising interests rates, the Index accordingly showed a sharp rise in Main Street businesses facing higher borrowing costs, with 41% reporting they faced higher rates on new loans or in refinancing, compared to 27% of businesses in Q2.
With consumer spending skewed toward the fourth quarter due to the holidays, as in every year, seasonal businesses cautiously wait out if sales will meet their expectations. If spending exceeds expectations, optimism may improve for the economy going into the new year.
“Looking toward the holidays and year end, we’re keeping an eye on whether businesses will meet expectations they set for sales. There is uncertainty as to whether consumers will meet those expectations. If consumer spending comes back stronger than expected, that could be a positive sign for the economy,” says Rathbun.
