Americans applied to start a record 5.4 million new businesses last year. The White House touted in April that he was the fastest Hispanic American to file in more than a decade, 23% faster than his pre-pandemic levels.
But inflation has soared to the highest level in a generation and remains one of the most important issues for 29% of small businesses surveyed by the National Federation of Independent Business in August.
While this is 8 percentage points lower than July’s highest since the fourth quarter of 1979, many small business owners are still struggling, with fewer options than most.
“Banks don’t even talk to me,” says chef Wanda Blake, owner of Wanda’s Cooking in Oakland, California. I need to look at my history, the bank is not set up to identify that I am human and what I want to do.”
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What is a small business owner?
According to the Chamber of Commerce, there were 30.2 million U.S. small businesses in 2018. Of these, 22 million are privately owned and have no employees other than their owners.
Women owned 11.6 million, or 38.7%, of SMEs, while minorities owned 8 million, or 26.5%. Veterans owned 2.4 million copies, or about 8%, according to the Chamber of Commerce.
Women of color are the fastest growing entrepreneurs, growing 4.5 times faster than the average, said Luz Urrutia, CEO of Accion Opportunity Fund. The Accion Opportunity Fund provides financial assistance, counseling and networking to small businesses that promote racial, gender and economic justice.
Why do small business owners suffer more?
Rapid inflation eats up already small gains. A survey of 550 small business owners conducted by Cabbage, part of American Express, released last month, found revenue increased 87% between July 2021 and July 2022. Despite this, overall small business profits fell by about 4%.
Even tougher, 75% of respondents reported feeling the effects of inflationary pressures, and 56% expected the pressures to continue for at least a year into summer 2023.
“Gas is cheaper (since June), but not much else,” NFIB chief economist Bill Dunkelberg wrote in a report. “It looks like we will have to look to the Federal Reserve for some policy support, and we will probably get a lot of it.”
The Federal Reserve (Fed) has hiked interest rates on short-term benchmark fed funds by 3% this year, which includes the past three hikes of a staggering 0.75% each, and is yet to be completed. not. Higher rates should raise borrowing costs, which should cool spending and keep inflation under control.
It remains to be seen if inflation will drop sharply or if the economy will plunge into recession or stagflation (slow or zero growth and high inflation). But it’s often part of underserved communities that don’t have enough business or credit history, don’t have enough income or assets, don’t want to borrow enough to be valuable to big banks. It’s easier said than done for a variety of reasons, including:
Urrutia said some entrepreneurs become desperate and fall for predatory lending. That’s why it’s important for small businesses, especially those in already disadvantaged communities, to talk to each other and find “affordable and responsible financing,” she said.
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What can small businesses do?
Raise prices to cut costs, but it’s often not that easy.
Jahmal Grace of Grace + Love Candle Co said: holiday.
“Many banks want to lend $50,000 or $100,000 at much higher interest rates,” but Grace said they only need $6,000.
Because he uses QuickBooks accounting software, QuickBooks Capital has information about Grace’s business from his accounting entries and was able to provide him with a pre-approved individual loan. He only had to verify his ID and loan amount to get the loan on the same day. Traditional banks required documentation and manual reviews that could take days or weeks.
“The ease and speed[of loans]brings comfort to businesses,” said Rob Daniel, director of product management at Quickbooks Capital. is there and ready.”
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Blake has gone a different route, using international nonprofit Kiva to enable people around the world to crowdfund microloans. Blake loved being able to share her personal story and explain why she needed a loan.
Lenders then look at people’s needs and select loans as low as $25. The borrower receives her 100% of the funds people lend and repays the lender once she starts making money. According to Kiva, the average repayment rate for borrowers is 96.4%.
Kiva “depends on my friends, family and community. It depends on who I am and what I do for my community,” she said. Blake was surprised and impressed. Some of her customers found her on her Kiva and lent her money. “My clients have become my investors,” she said.
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At the start of the 2020 pandemic, Blake launched the next phase of her business: a pantry on her website to sell “pepper chow chow,” a traditional Southern condiment. inflation that accompanies it.
She didn’t budget for higher rents, higher shipping costs, and peppers in her signature Pepper Chow Chow.
“Because peppers were in short supply, prices went from $32 to $64 a case,” says Blake. Instead of raising her prices, she used her Kiva loan to absorb her additional costs.
Kiva “needs spike when the going gets tough, when banks stop lending,” Kathy Guiss said. Kiva’s Vice President of Investments said:
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Kiva has expanded its eligibility in 2020 to accommodate more borrowers, Guis said. “His two-thirds of our borrowers have been in business for less than three years.”
With inflation still at a 40-year high, Blake may need even more help from the Kiva community. She planned to use a Kiva loan to buy her label machine for production, but had to use it to cover other rising costs.
But even with another Kiva loan, inflation is delaying her purchase of the label machine again.
“Other expenses, such as rent and salaries, are high priority, so label machines are low priority,” she said. “I don’t think the label machine will be budgeted for another of her Kiva loans.”
Maybe next year.
Medora Lee is a money, markets and personal finance reporter for USA TODAY. You can contact her at mjlee@usatoday.com and subscribe to her free Daily Her Money newsletter where you can get personal her finance tips and news about her business every Monday through Friday morning.
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