America's small businesses are starting to recover

December 7, 2020 – After two straight quarters of small business spending falling sharply, spending on small business cards had a significant rebound in the third quarter (+24.5), according to the Visa Small Business Spending Index. The ability for many small businesses to reopen hinged on investing in materials to prevent COVID spread, such as plexiglass dividers in restaurants. Despite revenues remaining low, many small businesses ramped up spending to be able to open their businesses safely.

Outstanding balances on Visa small business credit cards slid for the third consecutive quarter(-1.9). Although small businesses are spending, they are also wary of taking on any new revolving debt while revenues remain far below pre-pandemic levels.

While charge-offs increased modestly in the third quarter (+1.3), delinquencies plummeted (-15.9). As small businesses navigate this turbulent time, their hesitation to take on revolving debt has increased the share of credit card debt that remains current. Bank loans and federal assistance continued to be the preferred borrowing path for small businesses.

"Despite the ongoing challenges of the pandemic, small business spending has rebounded significantly. Small businesses are far less likely to be delinquent on their credit cards, but this is primarily due to remaining uncertainty around the pandemic that has kept small businesses from borrowing more on their credit cards."

Wayne Best
Chief Economist, Visa Inc.

^*Payment volume and balances per active account

^**Percent of balances delinquent and charged-off

Small business credit expectations, according to NFIB survey

In September, five percent fewer firms expected better credit conditions relative to those that did not think conditions would get better, according to a survey by the National Federation of Independent Businesses (NFIB). This was a 1 percentage point decline from August, and a 4 percentage point decline from the pre-pandemic peak in February. Despite low interest rates, issuers remain restrained in issuing more credit to small businesses as new spikes in COVID threaten reopening plans of many states.

The net percentage of firms reporting that getting credit was more difficult than the previous time they tried to get credit increased to 2 percent in September, up from 1 percent in August. Historically, a higher share of small businesses report that credit was harder to get last time than what we have seen recently.

Despite an increase in small businesses reporting that credit was harder to get previously and fewer expecting better credit conditions, more small businesses had their borrowing needs met in September. Firms reporting that their borrowing needs were met increased 2 percentage points from August to 33 percent and the share of firms reporting that their borrowing needs were not met fell 1 percentage point from August to 2 percent in September. Federal government assistance has been integral to meeting the borrowing needs of many small businesses.

Disclaimer

Case studies, research and recommended practice recommendations are intended for informational purposes only and should not be relied upon for marketing, legal, technical, tax, financial or other advice. When implementing any new strategy or practice, you should consult with your legal counsel to determine what laws and regulations may apply to your specific circumstances. The actual costs, savings and benefits of a card program may vary based upon your specific business needs and program requirements. Visa makes no representations and warranties as to the information contained herein and member is solely responsible for any use of the information in this presentation in connection with its card programs.

Forward-Looking Statements

This presentation contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements are generally identified by words such as “outlook,” “forecast,” “projected,” “could,” “expects,” “will” and other similar expressions. Examples of such forward-looking statements include, but are not limited to, statements we make about Visa’s business, economic outlooks, population expansion and analyses. All statements other than statements of historical fact could be forward-looking statements, which speak only as of the date they are made, are not guarantees of future performance, and are subject to certain risks, uncertainties and other factors, many of which are beyond our control and are difficult to predict. Studies, survey results, research, recommendations, opportunity assessments, claims, etc. (the “Statements”) should be considered directional only. The Statements should not be relied upon for marketing, legal, regulatory or other advice. The Statements should be independently evaluated in light of your specific business needs and any applicable laws and regulations. Visa is not responsible for your use of the Statements, including errors of any kind, or any assumptions or conclusions you might draw from their use.

Methodology

Except were otherwise noted, statements herein are based on:

• Visa Small Business Health Indexes, pulled from proprietary Visa data indexed to Q1 of 2013 and calculated as follows:
  • Spending Index: Changes in spending per spend-active small business credit card account
  • Borrowing Index: Changes in balances per balance-active small business credit card account
  • Risk Index: Changes in share of balances delinquent and balances charged-off in a quarter on Visa small business credit cards
• The NFIB conducts a survey based on a random sample of 1,300 to 1,800 small businesses on the NFIB membership list. The survey form is mailed to them on the first day of every month.