America’s small business spending surges in Q2 to meet consumer demand

September 15, 2021 - Small business spending in the second quarter of 2021 surged 32.4 points quarter-over-quarter (QoQ) and 56 points year-over-year (YoY), according to the Visa Small Business Spending Index. Consumer demand also surged in Q2 due to a large-scale rollback of COVID-19-related restrictions, which contributed to small businesses being more comfortable and able to spend. However, part of the rise in spending was due to the elevated inflation rate for inputs that small businesses needed.

Outstanding balances on Visa small business credit cards rose for the second consecutive quarter, leading the Visa Small Business Borrowing Index to rise 2.5 points QoQ and 1.6 points YoY. Small business borrowing remains far below pre-pandemic levels (down 8.8 points from Q4-2019), mostly due to the large amount of small business relief and government stimulus disincentivizing borrowing from traditional sources. These programs will end in early 2022, which could spur more demand for borrowing from traditional sources if small businesses are able to weather the new Delta variant challenges.

Both delinquencies and charge-offs fell drastically in the second quarter. Small business delinquencies and charge-offs are both at an eight-year low. Strong sales and relief efforts have helped a large share of small businesses deleverage and remain current on their card payments. The dissipation of stimulus and relief effects could push these indicators back up next year.

“The broad-based reopening has led small businesses to feel very empowered to spend. Additionally, the spending has been prudent as small business card delinquencies and charge-offs are at the lowest point since we began tracking them. However, borrowing is proving slow to recover due, in part, to government relief programs filling that role.”
Wayne Best
Chief Economist, Visa Inc.

Highlights:

• The net percentage of senior loan officers reporting tighter lending standards for small business loans fell precipitously QoQ, according to a recent Fed survey.
• Loan officers also reported stronger demand for small business loans than in Q1, which is good news for a recovery in small business lending.
• Despite the increase in interest for loans, many small businesses are not actually borrowing. They are likely hesitating because the recovery is just beginning and the Delta variant presents new challenges for the future.
  

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Methodology

Except were otherwise noted, statements herein are based on:

• Visa Small Business Health Indexes, pulled from proprietary Visa data indexed to Q1 of 2013 and calculated as follows:
  • Spending Index: Changes in spending per spend-active small business credit card account
  • Borrowing Index: Changes in balances per balance-active small business credit card account
  • Risk Index: Changes in share of balances delinquent and balances charged-off in a quarter on Visa small business credit cards
• The National Federation of Independent Businesses (NFIB) conducts a survey based on a random sample of 1,300 to 1,800 small businesses on the NFIB membership list. The survey form is mailed to them on the first day of every month.