What’s Next in Credit Report

One-Quarter of SMBs Plan to Increase Corporate Card Usage This Year

November 2023

Many small to mid-sized businesses address their needs with outside financing, and though these firms are most likely to use corporate credit cards, access to credit remains a challenge. Corporate cards could be key: One in four SMBs hope to increase their use of the cards, setting the stage for financial institutions that meet this demand to potentially also benefit.

Approximately 53% of SMBs lack readily available financing sources, and insufficient access to credit represents a key challenge leaving them vulnerable.
Even though corporate cards are the most common kind of business financing, only 28% of smaller SMBs have access to them.
Twenty-five percent of SMBs hope to increase their use of corporate cards in the near future, but many challenges stand in their way.


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    With ongoing inflation and rising costs taking their toll, many small to mid-sized businesses (SMBs) face increasing business costs. Many SMBs look to outside financing to address their needs to run their business and position themselves for growth. Despite the availability of multiple options, access to credit remains a challenge, leaving many vulnerable to closure.

    As of July 2023, 47% of SMBs generating annual revenues of $10 million or less they had access to business or personal financing. The share with access to financing varies depending on the market sector. These businesses are most likely to use corporate credit cards, yet just 28% can access them. Access to corporate cards also varies by industry, though rates are low across all sectors we studied. Currently, one-quarter hope to increase their use of credit products. Thirty-five percent use corporate cards to help grow their businesses. This suggests that financial institutions (FIs) that meet their desire for more credit products, including corporate cards, could also benefit.

    Challenges related to accessing corporate credit cards affect SMBs of different sizes. To better understand the scope of these challenges, we look at smaller SMBs — those generating $10 million or less in annual revenues — and larger SMBs, which annually generate between $50 million and $250 million.

    What’s Next in Credit: Why SMBs Prefer Corporate Credit Cards for Short-Term Financing,” a PYMNTS Intelligence and Cross River collaboration, examines the challenges SMBs face in accessing credit to support and grow their businesses. This study explores SMBs’ preference for corporate credit cards for short-term financing.

    We sourced data from Main Street Health Q2 2023: Credit’s Key Role in SMBs’ Plans, Main Street Health Q3 2023 and the Growth Corporates Working Capital Index. For Main Street Health Q2 2023, we surveyed 514 firms generating $10 million or less in annual revenue between April 10 and April 28. In Main Street Health Q3 2023, we surveyed 509 firms generating $10 million or less between July 5 and July 21. For the Growth Corporates Working Capital Index, we surveyed 873 firms generating between $50 million and $1 billion between March 9 and June 12.

    Key Findings

    With just 47% of smaller SMBs having readily available financing sources, insufficient access to credit represents a key challenge and leaves them vulnerable.

    Accessing the financing needed to run and grow their businesses remains challenging. It often puts these businesses in danger of closure. As of July 2023, just 47% of SMBs had access to business or personal financing. Moreover, the share with access varies depending on the market sector. For example, the professional services and personal and consumer services sectors are less likely than the average to have access to financing. Just 43% of professional services SMBs have ready access to financing, as do 38% of personal and consumer services SMBs.

    Meanwhile, 48% in the construction or utilities industry have access to business or personal financing. Forty-five percent in hospitality have access. This difference suggests that those providing services are less likely to need funds to purchase products compared to sectors such as construction or utilities and hospitality.

    Even though corporate cards are the most common business financing, just 28% of smaller SMBs can access them.

    Smaller SMBs have access to multiple sources of personal and business financing. These businesses use corporate cards the most often — but just slightly more than personal credit cards. Even so, the share that have access to or use corporate cards is small, as just 28% do so. Twenty-seven percent say the same about personal credit cards. Access to corporate cards varies substantially by industry, with rates low across all market sectors. Construction or utilities SMBs, at 32%, have higher rates of corporate card usage than average. The same goes for retail firms, at 29%. Again, personal and consumer services and professional services firms have lower rates than average, at 20% and 24%, respectively.

    Relatively few smaller SMBs have access to other types of business financing. While 13% have access to business loans from online vendors, 11% have access to working capital loans from banks. Just 6.6% have access to equipment financing. That so few SMBs can access business financing suggests it may be difficult to qualify in today’s economic environment.

    Twenty-five percent of SMBs hope to increase the use of credit products soon, but many challenges stand in their way.

    Despite the low usage of corporate credit cards among SMBs today, card issuers have a growing market opportunity. In fact, 25% of SMBs plan to increase their use of credit products in the next year. Moreover, 52% consider business credit cards when thinking about potential sources of financing to use. This share is more than other possible sources, such as business loans from online lenders, at 22%, or working capital loans from banks, at 21%.

    Finally, 41% say corporate credit cards are the financing source they will most likely to use in the next year. This sentiment indicates that many of these businesses want to avoid relying on personal credit cards for growth.

    A variety of obstacles stand between SMBs and increased corporate card usage, however. For instance, 49% of SMBs generating annual revenues between $50 million and $250 million said the top reason they have not used a corporate or virtual card in the last 12 months was cost. Ten percent of these firms cited eligibility criteria as the top obstacle, while 5.7% cited the length of the approval process. For 6.7% of these larger SMBs, the greatest barrier to corporate card use was the complicated application process. That SMBs face such frictions when accessing business credit indicates that card issuers are missing out on this opportunity by not easing SMBs’ access.

    Increasing access would help FIs take advantage of SMBs’ desire for more corporate cards. This access would benefit these firms, as 35% of SMBs using corporate cards do so to help grow their businesses.

    Using corporate credit cards as a working capital solution helps SMBs cover expected and unexpected expenses. In fact, 92% of larger SMBs that used corporate or virtual credit cards as a working capital solution in the last 12 months did so to pay for predictable expenses, while 78% did so to pay for unexpected expenses. When considering unexpected expenses, 43% use corporate cards to cover emergency expenses, 27% do so to cover payable shortfalls and 19% to cover receivable shortfalls. Among predictable expenses, 54% used corporate cards to meet cash flow needs, while 30% did so to buy inventory or services.

    Corporate credit card usage as working capital can provide countless benefits. For instance, those using cards to pay suppliers or for services can get interest-free access to working capital, with payments lagging behind spending by 30 to 60 days. They can also carry a revolving balance if cash flows are tight. Those on the supplier side can instantly receive their payments, avoiding inefficient accounts payable processes and lag with typical net 30 days or longer payment terms. Suppliers also benefit from nearly instant access to funds and relevant transaction data.

    Thirty-five percent also use corporate cards to grow their businesses — a sign that corporate cards are crucial to long-term success, providing FIs with a not-to-be-missed business opportunity.

    Conclusion

    SMBs in all market sectors continue to face serious challenges when accessing the credit that is so crucial for their success. In the current economic environment, the risk of closure remains an all-too-common reality for many. Because they have difficulty accessing the business financing they need, some rely on corporate credit cards. However, this financing option is out of reach for many due to the cost and frictions faced when applying for corporate cards. This is unfortunate, as they rely on corporate cards to cover expected and unexpected expenses and grow their businesses. In fact, FIs that issue corporate credit cards are missing out on a huge business opportunity.

    As SMBs have been less able to access funding from traditional banks, FinTech has an opportunity to step up and fill the gap. Such alternative business credit sources can be nimble enough to improve these businesses’ access to financing solutions while managing risk.

    Methodology

    What’s Next in Credit: Why SMBs Prefer Corporate Credit Cards for Short-Term Financing,” a PYMNTS Intelligence and Cross River collaboration, examines the challenges SMBs face when accessing lines of credit to support and grow their businesses.

    We sourced data from “Main Street Health Q2 2023: Credit’s Key Role in SMBs’ Plans,” “Main Street Health Q3 2023” and “The Growth Corporates Working Capital Index.” For Main Street Health Q2 2023, we surveyed 514 firms generating $10 million or less in annual revenue between April 10 and April 28. For Main Street Health Q3 2023, we surveyed 509 firms generating $10 million or less in annual revenue between July 5 and July 21. For the Growth Corporates Working Capital Index, we surveyed 873 firms generating between $50 million and $1 billion in annual revenue between March 9 and June 12.

    About

    Cross River provides technology infrastructure powering the future of financial services. Leveraging a proprietary real-time banking core, Cross River delivers innovative and scalable embedded payments, cards and lending solutions to millions of consumers and businesses. Cross River is backed by leading investors and serves the world’s most essential fintech and technology companies. Together with its partners, Cross River is reshaping global finance and financial inclusion. Member FDIC.

    Ingo

    PYMNTS Intelligence is a leading global data and analytics platform that uses proprietary data and methods to provide actionable insights on what’s now and what’s next in payments, commerce and the digital economy. Its team of data scientists include leading economists, econometricians, survey experts, financial analysts and marketing scientists with deep experience in the application of data to the issues that define the future of the digital transformation of the global economy. This multi-lingual team has conducted original data collection and analysis in more than three dozen global markets for some of the world’s leading publicly traded and privately held firms.

    The PYMNTS Intelligence team that produced this Report:
    Scott Murray: SVP and Head of Analytics
    Alexandra Lange, PhD: Senior Analyst
    Margot Suydam: Senior Writer


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