Small Businesses Stall Amid Higher-for-Longer Interest Rates

Everyone hates high prices and interest rates, but nobody hates them more than your local mom-and-pop shop.

In a Goldman Sachs survey of more than 1,200 small businesses, 53% said they can’t afford to take out loans at their current rates.

Keeping the Lights On

The average interest rate that small businesses paid on short-term loans has stood at 9% or higher over the past three months, up from 6.7% a year ago, according to the National Federation of Independent Business. Plus, reserves from pandemic-era assistance programs have dried up.

That’s bad for small businesses, which, because they operate on thinner margins and have fewer financing options, can’t afford to add more employees, expand their physical footprints, or purchase much-needed machinery:

• 1-800-Tshirts owner Tom Rauen told the WSJ that he had to delay purchasing a $50,000 digital printing machine, which would’ve allowed his team of 35 to handle more on-site production. He also worries about making loan payments in January and February, when business tends to slow.
• The businesses making due are the lucky ones: Nearly 1,500 companies filed for a lower-cost Subchapter V bankruptcy at the end of September, roughly the same as for all of 2022, the American Bankruptcy Institute reported.

Get to the Cuts: In a much-needed reprieve, the Consumer Price Index slowed to 3.2% in October year-over-year, down from September’s 3.7%, and thankfully not even in the same universe as the 9.1% in June of last year. The dip was partly due to plunging gas prices, with eight states averaging less than $3 per gallon last week, according to GasBuddy.

Confidence is growing among traders and economists who feel the Fed might actually start cutting rates next year, a move that only a few months ago didn’t seem to be in the cards. Small businesses hope it’s not a long wait.