B2B Payments

Strong Cash Flow Has SMBs Pulling Back Financing Demand

Strong cash flow among U.S. small businesses means less demand for financing, and trend is reflected in the latest figures from Pepperdine University‘s Graziadio Business School in conjunction with Dun & Bradstreet.

Reports in The Washington Post on Monday (July 2) said the survey shows small- and medium-sized businesses (SMBs) in the U.S. reported strong cash flows in the second quarter of this year, and fewer businesses are seeking external financing as a result. Only 30 percent of SMBs surveyed said they sought outside funding in the last three months.

For the firms that didn’t seek financing, 54 percent said it was because existing cash flows were strong enough to not need it. Researchers predict this trend will continue for the rest of the year: 29 percent of small firms said they have no plans to seek external financing in the coming six months, with 69 percent of those noting that their cash flow is currently strong enough. For the businesses that do want external financing, 57 percent said they plan to use the funds to focus on growth or expansion. Two-thirds of those businesses said they are likely to turn to a bank for financing.

The report found that, while cash flow is resilient, small business revenue outlooks weakened for Q2, with businesses expecting revenues to increase by an average of 6.2 percent, down from 10.5 percent revenue increases expected during the first quarter.

Strong cash flows in the nation’s small business population may also be a sign of a strong national economy, with analysts predicting a 4 percent increase in gross domestic product for Q2. Some economists say tax reform is also likely to boost the nation’s SMB population. Recent research published earlier this year took a long-term view of small business finance in the U.S. NDP Analytics found that small business lending by the nation’s top-five online lending providers jumped 50 percent between 2015 and 2017.

While Pepperdine’s report highlights that most small businesses that plan to seek funding will do so from a traditional bank, NDP Analytics’ research highlights the growing popularity of online lenders.



The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.