Consumers Pay Down Credit Card Debt As Businesses Ramp It Up

As the coronavirus pandemic continues, a sharp difference emerges between the ways consumers and businesses are dealing with credit: Consumers are spending less and have reduced debt, while businesses are drawing on their credit lines more than usual, according to Seeking Alpha.

Consumers, faced with the mass uncertainty of where the next few days, weeks or months are going to go with the virus, have been spending less, guarding themselves as people typically do in uncertain situations. The fact that the virus has shut down a majority of places to spend money has helped with that, too.

Businesses, meanwhile, are suffering for the obvious reason of the shutdown taking away a large bulk of their profits. Some industries like travel as well as oil and gas have been hit particularly hard.

Another difference is the level of debt from both sides. Consumers have had less debt since the last recession from 2008. Meanwhile, the levels of business debt have only gone up in those intervening years, largely due to low interest rates.

Now, although there is stimulus money coming, some businesses might not qualify if they don’t meet a certain threshold for small businesses; and for larger businesses, the costs may be too great to easily surmount.

The market for consumers is likely to bounce back slowly, but quicker than that for businesses due to job losses, lower investment values and more conservative spending, alongside the aforementioned fear.

But the businesses, with spiking debt and less government protection, are likely to have a rougher go of it for the next several months. Because of that, capital spending is not likely to see a good few months as businesses instead focus on paying debt and repairing balance sheets instead.

Meanwhile, the Small Business Association’s bottomed-out funding to help with loans creates a new urgency for a second round of stimulus funds.