Small businesses are reportedly reducing their software spending, hurting the companies that create that software.
As CNBC reported Thursday (Nov. 16), companies like HubSpot, Bill, Paycom And ZoomInfo have everything recently warned investors of potential declines in turnover in small and medium-sized enterprises (SMEs).
That caused unrest on Wall Street, the report said, as the SMB-focused tech scene is hurting even as broad market indexes rise.
For example, CNBC said, Paycom said last month that revenue growth for 2024 would be 10% to 12%, missing analyst forecasts of growth of more than 20%.
Days later, Bill’s shares fell 25% as the company lowered its 2024 profit and revenue guidance. Chief Financial Officer Johannes Rettig said on the earnings call that the company is “operating in an environment of increasing economic turmoil, and small businesses are under increasing pressure to adapt to today’s realities.”
One of the realities that SMEs face today is high interest rates. Data from the National Federation of Independent Business shows that the average interest rate small businesses have paid on short-term loans has been 9% or higher over the past three months, compared to 6.7% in 2022 and 4.6% in August 2021.
And a recent Wall Street Journal (WSJ) survey found that more than half of small business owners said higher interest rates had affected their operations.
“Small businesses are generally in better financial shape than in the past, when interest rates have risen sharply, but they are still financially vulnerable,” Mark Zandichief economist Moody’s Analyticstold the WSJ.
One of the problems that SMEs face is access to credit. PYMNTS Intelligence has shown that as of July 2023, only 47% of SMBs with annual revenue of $10 million or less had access to business or personal financing.
Meanwhile, 53% reported that they “currently do not have access to credit.” It’s a problem felt most acutely among the smallest companies, those with annual revenues of $150,000 or less.
According to “What’s Next in Credit: Why SMBs Prefer Corporate Credit Cards for Short-Term Financing” the lack of financing varies from market to market.
“Smaller SMBs have access to multiple sources of personal and business financing,” PYMNTS wrote. “These companies use corporate cards most often, but slightly more than personal credit cards. Yet the share that has access to or uses company cards is small: only 28% do so. Twenty-seven percent say the same about personal credit cards. Access to corporate cards varies significantly by sector, with rates being low across all market sectors.”