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Working capital crunch afflicts small- and medium-sized U.S. firms

June 30, 2017
Dun & Bradstreet survey finds demand for financing is rising due to tightening cash flows.

More small and medium-sized U.S. businesses reported more working capital challenges in the last three months than during any other period in the last five years, according to new results from the second quarter 2017 Private Capital Access (PCA) Index report compiled by Dun & Bradstreet and Pepperdine Graziadio School of Business and Management.

The second quarter PCA Index results show that 66% of businesses that were surveyed reported working capital as the reason for seeking financing in the last quarter – an all-time high for the survey since its origination in 2012 and up 22% from the 54% recorded in the second quarter last year.

Women-owned and minority-owned businesses are feeling the effects of a working capital crunch more acutely, the latest survey also found. Both women-owned (72%) and minority-owned (80%) respondents cited working capital challenges as the lead reason for seeking capital during the second quarter this year.

On top of that, 22% of small (less than $5 million in revenue) firms and medium-sized ($5 million to $100 million in revenue) businesses reported that their accounts receivables payments slowed over the past three months, impacting the ability of smaller companies to grow at a much higher rate than their medium-sized counterparts (42% vs. 24%).

Slower accounts receivable payments disproportionately impacted women- and minority-owned businesses, with 47% of women-owned and 44% of minority-owned businesses reporting that their ability to grow was impeded.

“While access to capital for small businesses has steadily increased since the Great Recession, these businesses are still feeling the effects of being the last paid on the totem pole,” noted Bodhi Ganguli, lead economist at Dun & Bradstreet. “While it’s great that banks and alternative lenders are lending at more accessible rates, the capital issues businesses are facing are unfortunately coming from the slowed payments from their business partners. As the Federal Reserve continues to raise the interest rate and the cost of borrowing increases, small businesses will likely feel this crunch more and more.”

Despite the working capital crunch, however, demand for and access to capital is slightly up for both small and medium-sized businesses year-over-year.

Small companies fared better this quarter than medium-sized companies, Dun & Bradstreet reported, as both demand (up 7.5%) and access (up 1.4%) were higher for small than medium-sized business demand (6.4%) and access (2.8%) compared to the first quarter this year.

Businesses also continued to register concern about the impact of interest rate hikes.

In mid-June, the Federal Reserve instituted the second interest rate hike of 2017, and signaled it would likely institute one more increase in the remainder of 2017 and up to three increases in 2018.

Yet 20% of small businesses had expected the second hike to challenge their ability to access capital, compared to just 7% of their medium-sized counterparts. Additionally, 17% of small businesses and 28% of medium-sized businesses believe increases impact their ability to expand to new markets.

“What we’re seeing is that while small and medium-sized businesses are still able to access capital, they’re realistic about the possibility that interest rate hikes may result in tighter margins and impact their ability to obtain financing in the future,” noted Dr. Craig R. Everett, director of the Pepperdine Private Capital Markets Project. “Business owners can generally handle a one-off rate hike, but the fact that the Fed is acknowledging the very real possibility of four additional increases in the next year and a half, on top of three in the last seven months, is causing greater uncertainty about future ability to expand.”

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American Trucker staff

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