In the dynamic world of commercial finance, the pressing need for working capital stands as a crucial element for businesses, especially for small and medium-sized enterprises (SMBs). A recent study by PYMNTS Intelligence, in collaboration with Enigma, reveals a significant gap in the availability of financing for these companies, underscoring the challenges they face in expansion and daily operations.
The research, titled "Main Street Health Q2 2023: Credit’s Key Role in SMBs’ Plans," highlights that SMBs require more financing sources than are currently available. This disparity is most acute among younger and smaller companies. For example, those with less than three years of operation and under $150K in revenue seek 26% more financing than what is accessible. These companies often have lower credit ratios, further complicating their access to financial resources.
The construction and utilities sectors, in particular, face notable financial challenges. Due to the nature of their industries, which necessitate substantial capital investments, there is a 20% gap between the financing they need and what is available. The hospitality sector, with an 18% gap, also grapples with financial constraints, significantly impacted by the recent economic downturn and reduced sales and profitability.
To bridge these financial gaps, many SMBs resort to alternative means. The study found that nearly a quarter of SMBs have used personal credit cards for business financing, and over 15% have taken personal loans from banks. This reliance on personal financing sources underscores the extent of the financial challenges, especially when considering that only 18% of companies have cash reserves equivalent to 60 days of revenue.
This financial vulnerability among SMBs signals a critical area of concern in the commercial finance sector. The report sheds light on the essential role of credit in supporting SMBs, not just in managing expected expenses but also in navigating unforeseen economic challenges. As such, the findings of this study call for a closer examination and response from financial institutions, policymakers, and stakeholders to address these gaps and support the growth and sustainability of SMBs even with all of the alternative business funding sources on the market.