QuickBooks Report Shows 20% Increase in Credit Card Spending
A new Intuit survey comprised of data from more than 5,000 small businesses in the United States, Canada, and the United Kingdom along with anonymous data from 3.4 million Intuit QuickBooks customers found that business owners are increasingly relying on their credit cards for funding.
About the report:
According to the 2023 Intuit QuickBooks Small Business Index Annual report, business owners spend an average of 20% more on credit cards now than they did prior to the pandemic. Moreover, with interest charges factored in, the average credit card payment for business owners rose by 26%. These increases can most likely be attributed to climbing inflation seen in recent years alongside growing interest rates, meaning that cardholders are both paying more for purchases and paying higher interest on those purchases.
Another reason why more small business owners may be turning to credit cards is due to a lack of other funding. This is especially true for younger businesses and those owned by underrepresented racial groups. In fact, businesses less than five years old were seven times more likely to rate “getting funding” as their largest challenge (when compared to businesses that are 21 years old or older). Meanwhile, businesses owned by minorities were twice as likely to rate funding as their top challenge.
Elsewhere in the report, Intuit looked at small business employment. What it found was that 36% of all U.S. workers are employed by small businesses. Additionally, these businesses create jobs 1.6 times faster than the national average. However, small business employment hasn’t proven as resilient as the overall economy. Although the U.S. has added jobs each month — including the new September 2023 report showing 336,000 payrolls added — small business employment rates declined in the first five months of 2023.
What they’re saying:
Commenting on the latest report, University of Chicago Professor of Economics Ufuk Akcigit stated, “The paramount concern for small business owners is the prevailing high inflationary environment. Adding to the challenge, interest rates have reached unprecedented heights.” Akcigit continued, “These adverse conditions have compelled business owners to tap into their savings and rely heavily on credit cards, where monthly credit card spending has surged by an average of 20% compared to pre-pandemic levels. When coupled with the increased interest payments on these debts, this translates to thousands of dollars in additional costs each month. Consequently, these shifts are exerting a detrimental effect on small business job creation.”
Meanwhile, Intuit CEO Sasan Goodarzi noted, “Becoming an entrepreneur is a bold decision. Given the significant impact new and growing small businesses have on job creation, innovation, and the economy, policymakers and industry leaders should be equally bold in creating an environment where small businesses can grow and thrive.”
Given the complicated economy that’s prevailed in recent years, it’s no surprise that business owners would be turning to their credit cards more and more as a means of managing cash flow. While this may be a viable solution for those who are able to pay off their purchases each month, rising interest rates mean that those carrying a balance on these cards may be racking up debt that could ultimately hurt their businesses. With that in mind, hopefully other funding options will increase for businesses — especially newer businesses and those owned by underrepresented minorities — in the near future.