Small and medium-sized businesses (SMBs) have plenty of uses for credit, but that does not mean they always want to borrow.
That distinction is showing up across the SMB credit market, where data and quarterly earnings point to growing deliberation before businesses take on more debt.
In discussing second quarter results earlier this week, LendingTree said business owners became markedly more cautious about taking on financing, even as lenders began returning to the market. PYMNTS Intelligencedata, meanwhile, shows that credit demand among SMBs is fragmented well before a business owner reaches a loan application: Some businesses have ready access to business credit, some rely on personal cards, and others continue to operate largely with cash and checks.
The result is a credit market in which availability and demand can move in different directions.
PYMNTS Intelligence research conducted with Mastercard provides a useful look underneath that demand. About 61% of SMBs surveyed use a business-specific credit card, but 30% use a personal credit card. The differences become much larger when the data is broken down by age and size. Only 22% of Gen Z-owned or operated businesses have a business card, while 73% use a personal card. Among SMBs with annual revenue of $150,000 or less, just 37% have a business card and 35% use a personal card.
A business owner using a personal card may still be borrowing for the business, but that activity will not necessarily appear as demand for an SMB loan or business card. Other owners may have available credit but decide that current conditions do not justify taking on another fixed obligation.
And some businesses simply do not see enough value in changing how they finance everyday operations.
The PYMNTS data found that SMBs surveyed made an average 32% of payments with cash and 37% with checks. Those choices vary considerably by business. Cash is more prevalent among younger businesses and businesses managing immediate, day-to-day liquidity needs. Checks remain entrenched among older and larger businesses with established invoicing and vendor-payment processes.
Price adds another restraint. Twenty-five percent of SMBs cited card costs and fees as an obstacle to reducing cash use.
One business may want financing but lack access. Another can get financing but considers it too expensive. A third has sufficient cash or an established payment routine and sees little reason to borrow. And another may use a personal credit card because it is already available.
LendingTree Sees Borrowers Hit the Brakes
LendingTree’s second quarter results capture another piece of that picture: businesses that can borrow but decide to wait.
The company said SMB borrower demand fell more than it had anticipated during the quarter. That followed a long period of expansion: LendingTree said its SMB product had generated nearly 40% average quarterly year-over-year revenue growth since the beginning of 2024.
On Wednesday’s (July 29) earnings call, CEO Scott Peyree tied the slowdown to business owners postponing spending rather than lenders broadly withdrawing credit. Some merchants, he told analysts, are saying, “Maybe I’ll get a little bit less money or just hold off for another few months before I do this.”
LendingTree said lender demand had started to recover, while borrower demand remained the constraint.
Credit Has to Solve Something
The PYMNTS and Mastercard findings also show what can bring SMBs into the credit market.
For many businesses, the appeal of credit is tied directly to liquidity: 59% of surveyed SMBs identified business cards as the best option for making a payment when they do not have cash on hand, and 63% selected cards for disputing payments and getting money back.
Asked what card features they would pay for, smaller businesses emphasized adjustable payment windows, fraud and cyber protection, longer payment periods and fast approval. Construction and utilities firms placed fast approval first, followed by installment purchasing, longer payment windows and payment timing flexibility.
The constraints may prove temporary. LendingTree expects its SMB business to recover as business confidence improves and the company has already seen lenders become more active. But as the PYMNTS Intelligence data indicate, a broader recovery in SMB credit demand will depend on more than available underwriting capacity.
