The Three Biggest Fears For Small Business Owners This Halloween - Forbes

The current economic climate, just like Halloween, seems scary to many small business owners. Chief among their concerns is inflation. In fact, according to a recent survey by Bank of America, inflation is the number one concern of 75% of the business owners. Moreover, 88% say inflation and 80% say supply chain issues continue to impact their operations, leading to price increases. Additionally, the ongoing labor shortage means that labor costs also are increasing as companies vie for talent.

Another source, the NFIB Small Business Optimism Index, found that 37% of small business owners reported that inflation was their single most important problem in operating their business, the highest level since the fourth quarter of 1979,

Access to capital is another big concern.

Small business loan approval percentages are relatively stagnant and declined at big banks ($10B+ in assets) dipped from 15.3% in July to 15.1% in August, according to the latest Biz2Credit Small Business Lending Index™ released earlier this month.

Although approval rates improved at small banks to 21.5% in September, the number is still less than half of pre-pandemic results in January and February of 2020, before COVID shut down the economy. Similarly, institutional lenders approved 25.9% of loan requests in August, a slight increase from 25.8% in July, but nowhere near the 66.5% of funding requests granted in February 2020.

With ever rising increases in interest rates, now is a tough time for small businesses in search of capital for growth. There is additional concern since many economists believe that when the Federal Reserve's Open Market Committee (FOMC) meets again November 1-2, the central bank likely will raise interest rates another 75 bps in an effort to curb inflation.

WASHINGTON, DC: Federal Reserve Chair Jerome Powell speaks at a May 4 news conference f(Photo by Win ... [+] McNamee/Getty Images)

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Women and minority entrepreneurs are concerned because they continue to face barriers accessing capital. More than a quarter (29%) of women business owners surveyed by Bank of America said they do not think they will ever have equal access to capital, while 40% of Black business owners, and 27% of Hispanic-Latino business owners said the same.

Minority business owners reported in the survey that they have more challenges accessing capital for their businesses than the national average, with 46% of Black and Hispanic-Latino business owners reporting they've personally faced challenges. Expanding access to capital for women and minority business owners is critical to their ability to grow.

Looming Recession

According to a report by Bloomberg this summer, the odds are 50-50 that the economy will slip into a recession before the end of 2022. A study by Clarify Capital found that 71% of American small business owners think a recession is near, and 70% of them fear their firms won't survive a recession.

Because the Fed has been so aggressive in combatting inflation and most people fell a recession is looming, businesses reported in the Clarify Capital study that they are already planning for the recession. They anticipate buying less, postponing renovations or investments (such as new equipment), and will try to negotiate lower prices and increase marketing spending while cutting other costs.

A recession scares many small business owners because many of them still haven't fully recovered from the financial setbacks caused by the COVID pandemic. While the economy has indeed rebounded steadily, a recession possess a serious challenge for countless small business owners across the country.

Economic Uncertainty sign against a stormy background with lightning and copy space. Dirty and ... [+] angled sign adds to the drama.

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Optimism on the Horizon

Despite concerns about high gas prices, rising interest rates, ongoing supply chain issues, and continuing labor shortages, small business owners are forecasting a strong year ahead, according to Bank of America. Over the next 12 months, 66% of business owners expect revenue to increase and 52% plan to expand their business—up from 37% this spring! Meanwhile, 83% plan to obtain funding for their business and, even as the possibility of a recession looms, 77% of entrepreneurs say their company is equipped to survive a recession.

It may be irrational exuberance, but in general, small business owners are indeed optimistic about the future. Small businesses proved their resilience during the crippling economic times of the pandemic, when millions of companies were shut down for weeks, if not months. They made it through and, in many cases, are stronger for it.