Credit Cards Become Lifeline for Small Businesses Facing Inflation

Small business credit card debt is on the rise. And it’s probably due, at least in part, to inflation. Small business credit card balances have increased 18% since 2019, according to data from the Bank of America Institute.

Small businesses turn to credit cards for a variety of reasons. But inflation looks set to be the primary factor putting financial pressure on businesses in 2024. In fact, a recent Goldman Sachs survey found that 71 percent of small business owners feel that inflationary pressures on their business have increased in the past three months.

Using credit cards is just one of the adjustments small businesses are making. Additionally, a Bank of America survey found that 47 percent said they have increased prices, 45 percent have increased their hours, and 32 percent have cut their pay.

The relationship between inflation and increased credit card usage is clear. When it becomes more expensive for businesses to purchase the products and services they need to operate, more businesses are likely to borrow to cover those costs. For those who only need short-term money, credit cards are a satisfactory solution; however, they usually come with high interest rates. Thus, businesses that can cut unnecessary costs or adapt in other ways are likely to be more successful in the long run.

Moreover, while inflation is partially responsible for the overall increase in credit card balances, it also explains why current interest rate hikes are not as dangerous as you might think.

Indeed, when you consider the 22% increase in inflation since 2019, the 18% increase in credit card balances seems pretty in line with expectations. The data also suggests that businesses are cutting back on unnecessary spending. So even if there’s been some increase in debt, small business owners are generally managing their finances wisely, even during a difficult times.