ADN SPRING 2023 web

INDUSTRY NEWS
Owners are stressed thanks to the small business credit crunch
The small business credit crunch is no
joke. “Borrowing for small businesses was
already constrained due to rising interest
rates,” according to an Associated Press
report from April 11. The recent collapses
of Silicon Valley Bank and Signature
Bank, didn’t help matters and now it looks
like other banks are being “forced to tighten
credit further, since they’re seeing an
outflow of deposits, which means they
need to retain capital,” the story said.
According to Ray Keating, chief economist
for the Small Business & Entrepreneurship
Council, “It’s hard to read how
severe this is going to be, but it’s certainly
going to be significant and when you look
at how things play out, small businesses
are hit the hardest.”
And, according to the latest Biz2Credit
Small Business Lending Index released
in February, the approval rates of small
business loan requests at big banks have
fallen for nine consecutive months, the
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story said. Only 14.2 precent of credit applications
were approved by larger banks
in February. Two years ago, the approval
rate was at 28.3 percent.
The story said that the Federal Reserve
will hike interes rates in order to
slow down the economy and ease inflation.
Rohit Arora, CEO and co-founder
of Biz2Credit, said that small businesses
will be left in the lurch.
According to an April 10 Reuters report,
“By raising the benchmark interest
rate that banks use in lending money to
each other, tighter monetary policy makes
consumer and business loans more expensive
and harder to get. In theory, that lowers
demand for credit-financed goods and
services, and in time also lowers inflation.”
Thankfully, the worst seems to have
been avoided, stated the Reuters story.
“Emergency steps by the Fed and Treasury
Department protected depositors
at both banks, helping ease what could
have been a destabilizing run from smaller
banks to larger ones. Other actions by
the Fed helped maintain confidence in the
wider banking system.”
The response - less lending, tighter
credit standards and higher interest on
loans - was already taking shape. Officials
are now watching for signs that has been
kicked into overdrive.
According to the story, Matthew Luzzetti,
chief U.S. economist for Deutsche
Bank, recently estimated if the next Fed loan
officers survey shows a 10-percentage-point
rise in the share of banks tightening credit,
it could lop about half a percentage point
from U.S. output - enough to turn expected
meager growth into a recession.
"These scenarios would push lending
conditions into a range that has more clearly
been associated with recession," Luzzetti
and his team wrote, according to Reuters,
saying they see potential for "a broader
tightening of financial conditions that will
meaningfully slow growth at a time when
recession risks were already elevated."
But…there’s some good news….
According to a more recent report
from Keating, the latest Consumer Price
Index (CPI) report from the U.S. Bureau
of Labor Statistics showed that inflation
ran at a mere 0.1 percent in March.
“That’s welcome news,” he stated.
For the 12-month period ending in
March, CPI inflation ran at 5.0 percent,
which was the slowest 12-month pace
since the period that ended in March
2021, he stated.
“If we look at the past nine months,
the news improves, as the annualized inflation
rate over that period registered approximately
3.2 percent. Indeed, as made
clear in the following chart from the BLS
report, inflation took a major step down
starting in July of last year.”
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VOL. 8, NO.2 • SUMMER 2023 | AUTO DETAILING NEWS | 13