NerdWallet Small Business Funding Index Falls as Interest Rates Rise

Rising interest rates and uncertain economic conditions are intensifying the slowdown in small business finance activity, according to the latest version of the NerdWallet Small Business Finance Index.

The NerdWallet Small Business Funding Index assesses factors such as loan default rates, loan volumes, credit card usage and small business owner optimism. Based on the most recent data available, as of July the index now sits at a low of 100.6, more than two points below its March 2022 high of 103.2.

The index had been relatively stable over the past few months, indicating that funding-related activity had remained stable; however, July’s slowdown suggests the dam may have burst.

Index values ​​from December to April have been revised to reflect changes in interpretation in data collection from one source. You can find the a priori values ​​in our previous NerdWallet Small Business Index.

Slide of key indicators

Falling small business loans and stagnating optimism among small business owners helped drag the index down, according to underlying data from Equifax, the National Federation of Independent Businesses and Dun & Bradstreet.

In July, the volume of small business loans was at its lowest level since the end of 2020, according to Equifax.

Data on credit cards and delinquent small business loans was mixed, with Equifax reporting rising delinquency rates in eight of the 10 largest states and in all six of its tracked industries in July; Dun & Bradstreet, however, reported a decrease in chargebacks and credit card chargebacks among small businesses.

National Federation of Independent Business optimism measures continued to fall, with the trade group noting that capital spending plans, inventory investment plans, expected actual sales and the expansion environment all went down.

Lending conditions set to tighten for small businesses

“We’re in that part of the cycle where the availability of credit is going to get tighter,” says Tommy Thompson, certified financial planner at Innovative Financial Group in Alpharetta, Georgia. The fact that many small business loans are short-term in nature and often involve floating interest rates could make raising interest rates even more difficult for small businesses in need of capital, he adds. he.

“It will cost more to get credit,” he says. “Underwriting standards are going to get tougher because you’re actually going to start seeing defaults and defaults, and the banks aren’t reacting to that by saying, ‘Oh, we need to be more flexible with our money. They are responding to this by tightening their underwriting requirements.

Experts Say: Do These 5 Things to Get Better Rates From Commercial Lenders

A tougher lending environment means business loans are likely to come at higher prices in coming months, but small business professionals say there are things entrepreneurs can do now to secure rates lower interest on business loans.

1. Have a relationship with the lender

If you don’t have an existing relationship with a lender, now may be the time to establish one. Thompson suggests that connecting with a local banker who has some autonomy in the underwriting process can make all the difference during a tight credit market.

“They know what their underwriters are looking for and they will do the coaching with the business owner to make sure the balance sheet looks like it should,” he says. A local banker can also review credit reports and payment histories in advance to ensure there are no red flags on your application.

2. Consider using collateral

Collateral reduces lender risk, which can mean a better deal for the borrower, according to Kelly Crane, certified financial planner and senior vice president of Wealth Enhancement Group in St. Helena, Calif.

From a lender’s perspective, Crane says, “Securing the loan with just your business income is riskier than securing it with an asset like your building or home. Secured loans therefore generally have lower rates.

3. Update your books

If you want to get the best terms for a business loan, make sure your business accounting statements and tax returns are correct, complete and up-to-date, says Armine Alajian, CPA and founder of the Alajian Group in Los Angeles and New York.

You will need to be able to explain to lenders what each line item means on your financial statements and what story it tells. You should also be able to explain how information on your tax returns relates to information on your accounting statements, she says. “They ask a lot of questions,” adds Alajian.

4. Keep your personal credit score high

A personal FICO score above 720 is a must for getting the best interest rates from small business lenders, Crane says.

“There’s a wide range of businesses, from a sole proprietor trying to fund his own operation to something a little bigger than that,” he says. “In the smaller of these business environments, it’s all down to the owner’s credit.”

If you require build your creditmonitoring your FICO score, freezing your credit report to thwart hackers and signing up for account alerts could help, Crane says.

5. Shop around and compare your options

It’s hard to know if you’re getting the best deal unless you have something to compare to, Crane notes.

“The only way to validate the rates you’re being charged is to talk to another lender,” says Crane. “If you have the opportunity to speak to two different banks and go through the process, I would say do your homework and be prepared to spend that time before you need the loan.”


This is the second tranche of the NerdWallet Small Business Funding Index. It tracks and weights data from multiple sources, starting in December 2021. Future index readings are always relative to the initial entry of 100. For example, an index reading of 110 would indicate that the index has increased by 10% since December 2021. this data provides a coherent overview of the economic context in which small businesses operate.

NerdWallet’s Small Business Finance Index combines elements of Equifax’s Small Business Loan Index and Dun & Bradstreet’s Small Business Health Index, which capture small business loan activity and small business credit cards, as well as the National Federation of Independent Business Small Business Optimism Index. , which measures owner sentiment.

Index values ​​from December to April have been revised to reflect changes in interpretation in data collection from one source. You can find the previous values ​​in our previous NerdWallet Small Business Index.