Small businesses are becoming more reliant on credit to manage cash flow problems, according to the newly released Intuit QuickBooks Small Business Insights report. In the U.S., the number of small business respondents with cash flow problems who turned to credit cards for financing needs increased from 51% to 68% between September 2022 and April 2023. Canada witnessed an even more dramatic rise, going from just 37% of respondents to 67% over the same time frame, while the UK experienced an increase from 32% to 51%.
Overall, a significant number of small businesses have relied on credit card debt over the past 12 months—30% in the U.S., 21% in Canada, and 14% in the UK. Those numbers outpace the percentage of respondents who have sought loans and lines of credit, with around 22% of U.S. respondents, 23% of Canadian respondents, and 12% of UK respondents having applied for these within the past year.
Payments Are Rising as Well
In addition to increasing usage, small businesses have also been making higher payments on their credit cards. The average monthly credit card repayment for small business owners in the U.S. reached $13,000 this year, up from just under $10,000 in 2018. Intuit says the increase is largely the result of rising interest rates and a high pass-through on credit cards.
By using QuickBooks customer data, Intuit found that prior to the COVID-19 crisis, credit card borrowing by small business owners had been stable for quite some time. Such borrowing declined significantly during the pandemic, but had rebounded to pre-pandemic levels by 2021, and has been on a continuous upward trajectory since. The accumulation of new credit card debt now stands at 20% above the levels from the pre-pandemic years.
Relying on Their Own Income
Up to two-thirds of respondents said they have relied on their own income to afford to start their own business. That breaks down as 53% who said they relied on income from another job and 21% who relied on income from their investments. Far fewer small business owners—roughly 1 in 10—use family inheritance as a source of funding.
The Intuit findings were drawn from 3.4 million small businesses: 2,795,000 in U.S.; 305,000 in Canada; and 313,000 in the UK using anonymized QuickBooks Online customer data from accounts with at least twelve months of regular transactions.
