Small business owners are increasingly in need of additional capital, with more than 60% indicating a greater demand for financing compared to just 12 months ago. But their reliance on business credit cards has proven insufficient, with more than half resorting to personal credit cards to cover business expenses.
Those are among the key findings from WalletHub’s annual small business survey, which showed once again how critical credit cards are to small businesses. A relatively recent factor driving the need for additional funding is ongoing inflation, with nearly two-thirds of respondents expressing skepticism about inflation easing anytime soon. In the 12 months leading up to March, inflation rose 2.7%, according to separate data from the Commerce Department’s Bureau of Economic Analysis.
The WalletHub study aligns with earlier findings that small businesses are becoming more reliant on credit cards to manage cash flow. Last fall, an Intuit QuickBooks Small Business Insights report revealed that the number of small businesses in the U.S. who turning to credit cards increased from 51% to 68% between September 2022 and April 2023.
Worse Rates for Small Business
What exacerbates the situation is that small business owners generally receive less favorable terms on their credit cards compared to individual consumers, as indicated by the WalletHub study, leading many to perceive this discrepancy as unfair.
Those higher rates may explain why personal credit cards remain a viable option for business owners, but this state of affairs may be outdated.
“Small business cardholders often get terms that are not on par with consumer offers,” said Brian Riley, Director of Credit and Co-Head of Payments at Javelin Strategy & Research. “Historically, regulators classified consumers and small businesses in different buckets, assuming that the consumer needs protection while the small business can defend itself. This may have been appropriate in the early days of credit, but with rapid growth in gig-workers and small businesses, credit card issuers are missing an important market to service.”
