April 18, 2023 | Stamford, CT — Approximately 40% of U.S. small businesses and mid-sized companies are experiencing tighter lending standards, including about one in 10 companies who say credit standards have already tightened considerably.

Tightening lending markets are exacerbating concerns among company owners and executives about the near-term outlook for their businesses. The Greenwich Optimism Index has been stuck in negative territory since the U.S. Federal Reserve started hiking interest rates in March 2022. A negative reading indicates that a majority of small businesses and mid-sized companies expect the economic conditions to deteriorate going forward, rather than improve. 

Participants in the latest Greenwich Market Pulse continue citing inflation, rising interest rates and a persistently tight labor market as key challenges.

“Fueling the negative outlook are reports of poor sentiment among manufacturers, decreased demand from large customers, and concerns about weakening earnings,” says Chris McDonnell, Head of Community, Commercial and Digital Banking at Coalition Greenwich.

Tighter credit markets have not caused small businesses and mid-sized companies to seek out new and more generous lenders—yet. However, Private Equity providers and other alternative sources of capital may present attractive non-traditional opportunities for companies seeking liquidity. About one in five Greenwich Market Pulse participants say they are likely to switch bank providers. This proportion is approximately twice the typical switching rate, but down from the 30% levels reached during the turmoil surrounding the COVID-19 crisis.  

U.S. Businesses Maintaining Investment Plans, Relying More on Cash
Despite the change in conditions, a large majority — roughly 80% — of companies plan to maintain or even increase planned capital expenditures for 2023. However, with banks becoming less generous with credit, small businesses and mid-sized companies are forced to adjust. Two thirds of the companies planning to increase capital expenditures plan to finance that growth through cash/retained earnings. At the other end of the spectrum, about one in five companies plans to reduce capital expenditures below expected levels for 2023 and almost 90% of those companies plan to reduce borrowing, including 15% of businesses planning to suspend borrowing altogether. 

The recent Greenwich Market Pulse updates the Greenwich Optimism Index, companies’ financing and spending plans, and provides insights into what companies are looking for from their banks in areas like data and analytics, digital banking services and open banking.