Main Street confidence is falling again, especially with banks and Biden

As President Biden begins to push his re-election more forcefully, citing Bidenomics, Wall Street forecasts and actual GDP data are supportive, as are recent improved sentiment readings from consumers and CEOs. But on Main Street, small business owners remain a group Biden will struggle to win over.

According to the just-released study, small business confidence has fallen back to an all-time low CNBC|SurveyMonkey Small Business Survey for the third quarter. This is nothing new for Biden, as small business confidence has been at an all-time low throughout his presidency. In fact, the recent drop in the confidence index to a reading of 42 out of 100 corresponds to the all-time low set exactly a year ago.

Since the business demographic tends to be conservative, the twin economic concerns of inflation and rising interest rates have increased general concerns about Democratic government. But at a time when there are signs of progress in the fight against inflation and a possible, though far from certain, end to interest rate hikes by the Federal Reserve, the third-quarter data raises more concrete – and perhaps more troubling – concerns for the president on.

Even in a resilient economy with interest rates at multi-decade highs, the number of small business owners who say they can easily access the capital they need to operate their businesses continues to decline, now at less than half (48%), down from 53 %. last quarter. This should come as no surprise, as higher interest rates impose more stringent lending requirements on banks, a dynamic that tends to disproportionately penalize small businesses and persists or even increases the longer a higher interest rate environment persists. Even for businesses that can secure loans, double-digit interest rates present a cash flow challenge.

Data released Monday by small business trade group NFIB reported similar difficulties among business owners trying to access capital. More than half (58%) of those who had taken out loans or attempted to take out loans cited high interest rates as their biggest complaint, and 40% of homeowners cited interest rates as a significant problem for accessing capital.

Wall Street Banks and Main Street Lending

This is shown in the latest monthly report from alternative credit company Biz2Credit from earlier this month Small business loan The approval rate for banks with over $10 billion in assets was 13.3% in July, an approval rate that has been steadily declining and had been as high as 28.3% in February 2020 before the pandemic.

Rohit Arora, CEO of Biz2Credit, noted in a press release accompanying his company’s data that as regulators increase capital requirements for some large banks in the coming years, preparatory measures taken today include greater restraint in lending to smaller companies , as these loans are often not possible. The term is between five and seven years.

Beyond recent concerns about the stability of regional banks, ratings agencies say even the biggest Wall Street banks are on guard for a downgrade, most recently a warning from S&P on Tuesday, not a situation in which banks are likely to be more accommodative with capital small business needs, and in fact, CNBC|SurveyMonkey data recorded a sharp decline in trust in the financial system among entrepreneurs who work with large banks.

When it comes to access to capital, small businesses that have accounts with major banks saw the largest decline compared to the previous quarter, down 10%. From 59% who said it was easy for them to access business capital, the proportion has now fallen to just 49%. That was a much larger decline than for business owners who bank at a regional bank (down 2% quarter-over-quarter) and for business owners who bank at a community bank (down 4%). The largest group of small businesses (41%) conduct business with large banks.

SurveyMonkey’s analysis of the data showed a gap between business owners expressing confidence and a lack of confidence in banks, growing from just 1 percentage point in the second quarter (49% confident, 50% not confident) to 9 points now (45% confident) and 54% not confident) increased this quarter.

“This data is a good reminder that the overall economy for small business owners can often be very different from the economy experienced by consumers on the one hand or large companies on the other,” said Laura Wronski, research science manager at SurveyMonkey.

The CNBC|SurveyMonkey Small Business Survey was conducted between August 7 and August 14 among over 2,000 small business owners in the United States.

While concerns about the banking crisis across the economy have eased since the last quarter, this is not reflected in the conditions facing small businesses.

“Banking concerns have now become even more important for small business owners as their trust in the U.S. banking system weakens and their ability to access the capital they need is limited,” Wronski said.

Biden’s business supporters are becoming increasingly negative

CNBC|SurveyMonkey’s quarterly confidence index includes a number of key policy sentiment indicators that contributed to the decline back to all-time lows, with more small business owners saying they expect negative immigration and tax policies.

That’s notable, according to SurveyMonkey’s analysis of the results, because those index components that had the greatest impact on the overall score are not related to attitudes or economic conditions, but rather “two factors that fall squarely under the purview of the President and Congress.” .

Business owners’ expectations for sales and hiring remained largely unchanged, and the percentage describing the economic situation as “good” changed only slightly, from 40% to 38%. More describe conditions as “mediocre,” up from 43% to 46% this quarter. But only 15% describe the business situation as “bad”.

“Small business owners appear to factor the political environment into their trust estimates more than the economic environment. The economy showed promising growth last quarter, with fewer worries about a recession across the economy and less imminent threat of a bank crisis,” Wronski said.

There was a significant decline for Biden in the trust index rating, rather than the broader survey questions. According to SurveyMonkey, overall approval of the president is now at the same level as in the third-quarter 2022 poll: 31% said they approved of the way Joe Biden is doing his job as president and 68% said they disapproved. The small business survey data is consistent with the general trend in the EU Current FiveThirtyEight poll average.

But Wronski said, “What’s really surprising is that overall confidence among small business owners is now falling for the first time among Biden’s supporters.”

With the overall trust index back at an all-time low of 42, the difference in trust index ratings specifically between Biden’s supporters and his critics is at a record low of 18 points (55 versus 37), according to SurveyMonkey. Among survey respondents who identify as Democrats, the quarterly trust score fell from 58 to 52, the lowest level since Biden took office. Among independents, the decline was from 49 to 42, the lowest since the first quarter of 2021. Republican confidence moved the least, falling from 39 to 37.