America’s small businesses are starting to borrow again

Visa’s proprietary indexes and a nationwide survey provide new indication of the state of America’s small businesses.

June 15, 2021 – Small business spending in the first quarter of 2021 dipped 9.5 points quarter-over-quarter (QoQ), according to the Visa Small Business Spending Index. Despite the two stimulus bills passed during the first quarter that included small business relief and fewer restrictions thanks to vaccine deployment, weaker than expected sales for small businesses has caused many firms to pull back on spending until a higher level of demand returns.

Outstanding balances on Visa small business credit cards rose slightly in the first quarter, causing the Visa Small Business Borrowing Index to increase 1.3 points QoQ. While small business borrowing remains far below pre-pandemic levels (down 11.3 points from Q4-2019), recent survey data from the Federal Reserve indicated that by the end of the first quarter there were nearly 20 percent fewer lenders saying they had tightened credit standards for small businesses compared to Q4-2020¹. Furthermore, the Q2-2021 survey indicates that more lenders are loosening credit standards for small businesses than tightening them, suggesting that small business borrowing should continue to recover throughout 2021.

Both delinquencies and charge-offs fell in the first quarter. Small business delinquencies are now at an eight-year low, which is a testament to the strong support the government has provided to small businesses during this pandemic.

One year after the start of lockdowns due to the COVID-19 pandemic, small business spending is near pre-pandemic levels, borrowing is starting to recover, and small business card delinquencies are at the lowest point since we began tracking them. While there is still a long road ahead for small businesses, there is reason for optimism.

Wayne Best

Chief Economist, Visa Inc.

Other Highlights:

  • Firms expecting better credit conditions increased by 4 percentage points in March relative to December, according to a recent NFIB survey.
  • Survey responses suggest lenders are becoming more accommodating to small businesses seeking credit.
  • Nearly one-third of firms reported their borrowing needs were met.

Small Business Borrowing Index (Outstanding balances on Visa business credit cards*, indexed to Q1-2013)

Line chart showing the Small Business Borrowing Index based on outstanding balances on Visa business credit cards. See image description.

Line chart showing the Small Business Borrowing Index based on outstanding balances on Visa business credit cards, indexed to 100 in Q1-2013. Index dropped to a low of 96.71 in Q4-2014 and rose to a high of 120.26 in Q2-2019. Outstanding balances rose slightly in Q1-2021, up 1.3 points QoQ to 106.55.

*Payment volume and balances per active account.
Source: Visa Business and Economic Insights.

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Footnotes:

  • ¹ Federal Reserve Senior Loan Officer

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Methodology

Except where 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.