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Report: Small businesses see credit tightening

Written on May 16, 2023

Small businesses faced more difficulty getting a loan last month than at any time in the past decade, according to the National Federation of Independent Business, flagging “concern that a banking crisis could develop” in the aftermath of bank failures. 

Compared with February, a larger proportion of small business owners expect reduced sales and said they plan to trim hiring, capital outlays and increases in employee compensation, NFIB said, describing details of a monthly survey. An index of business optimism fell, remaining below a 49-year average for the fifteenth consecutive month. 

“Small business owners are cynical about future economic conditions,” NFIB Chief Economist Bill Dunkelberg said in a statement. Inflation and difficulty hiring qualified employees persisted as the top two challenges for small businesses, the NFIB said. 

Turbulence in the U.S. banking system may trigger a credit tightening equal to an increase in the federal funds rate ranging between 0.25 percentage points and 0.75 percentage points, Chicago Federal Reserve President Austan Goolsbee said, citing estimates by private sector economists. 

Partly in response to tighter credit, U.S. economic growth will likely fall to 1.6% this year and 1.1% in 2024 from 2.1% last year, according to estimates by IMF economists. World output growth will probably fall to 2.8% in 2023 from 3.4% last year. 

Consumers saw a pullback in bank lending in March, the New York Fed said. The share of households reporting less access to credit compared with a year ago rose to a record high in a data series spanning nine years. Households also expect credit will be harder to obtain a year from now. 

A credit pullback by regional banks — the focus of turbulence in March — would especially crimp funding for credit cards and mid-size businesses as well as lending for autos and commercial real estate, Goolsbee said.