U.S. Chamber: Inflation has eased but it still a challenge

The MetLife and U.S. Chamber of Commerce Small Business Index shows small business owners continue to face tough economic conditions amid high inflation and rising interest rates but are increasingly hopeful for the future.

The overall Index score rose in the second quarter to 63.1 from 60 as a record-high share of small business owners (71%) expect their revenue to increase in the next year. A record-high share also anticipates hiring more staff in the next year (47% up from 37% last quarter). These are the most optimistic readings for both measures since the Index began in 2017.

“The challenges of our current economy may have delayed some small business owners’ plans to expand or hire more staff, but now they see opportunity for growth on the horizon,” said Tom Sullivan, Vice President of Small Business Policy at the U.S. Chamber of Commerce. “Small businesses are again showing remarkable resiliency. There has been a strong majority reporting that their business is in good health over the last year and it’s clear many have high expectations for the future.”

Small Businesses Adjust to Higher Interest Rates, Tighter Credit  

While interest rate hikes have implications for the broader economy, nine in ten (91%) respondents say small businesses are the most vulnerable to rising interest rates (52% strongly agree with this).

More than three-quarters (76%) say that rising interest rates are limiting their ability to raise capital, up from 66% who said the same last quarter. A similar percentage (73%) say it’s harder to borrow money because banks are tightening lines of credit.

Small businesses are also turning to more sources of capital compared to a year ago, particularly personal savings, friends, and family.

Half (50%) of small businesses report that they have delayed plans to grow their business in response to higher interest rates. A similar number (49%) indicates they have taken out a loan within the past year to cover higher costs due to inflation.

Stephanie Sims, Founder of Finance-Ability in Scottsdale, Arizona and member of the U.S. Chamber of Commerce Small Business Council, has been watching these trends closely.

“Tightening in both credit and private equity markets is creating challenges for many small business owners,” says Sims. “Rising interest rates make it more challenging for some entrepreneurs to qualify for financing, although I have seen several loan guarantee programs step up and assist some of these borrowers in securing funding.”

This is the sixth consecutive quarter where inflation tops the list of challenges for small business owners. More than half (54%) say inflation is a top challenge followed by interest rates rising (23%), supply chain issues (23%) and revenue (20%).

“The percentages of small business owners expecting an increase in revenues and hiring this quarter represent record highs in the six-year history of the Index, which is a very promising sign,” says Cynthia Smith, senior vice president, Regional Business at MetLife. “While the current economic conditions may have stalled their plans to grow, the combination of small business owners’ determination, drive and positive outlook bodes well for the future.”

The Q2 2023 survey was conducted May 8-24, 2023. The survey has a credibility interval of plus or minus 4.4 percentage points for all respondents.