Need a business loan? Inflation leads Main Street into more debt

On Feb 23, 2022

SAN FRANCISCO, CA – APRIL 28: Deanna Sison takes a break from preparing preordered lunches to check the status of her federal small business loan application at Little Skillet restaurant in San Francisco, Calif. on Tuesday, April 28, 2020. Most Covid financial relief to small business has now ended, but the need for more funding remains.

San Francisco Chronicle/hearst Newspapers Via Getty Images | Hearst Newspapers | Getty Images

Price increases have been challenging for Superfit Hero, an independent plus-sized activewear brand. The Los Angeles-based company typically buys fabric from a local vendor that imports the material from Taiwan, then works with a local factory. But since the pandemic, “the whole process has been disrupted,” said Micki Krimmel, the founder and chief executive.

Like many businesses, the company shut operations in spring 2020, but as things reopened, the factory that Superfit Hero was using closed for good. Meanwhile, the price of fabric went up 20%. Krimmel eventually found a new manufacturer, but between higher manufacturing and material costs, prices have tripled since 2019. At the same time, supply chain disruptions meant the company needed to stockpile more material and items to ensure a supply of products for customers

“For small business, having to invest in so much inventory it means our cash flow is tied up. We can’t spend on marketing. It’s just it’s really pressure from all sides,” she said.

To ease the pressure, Krimmel applied for the Covid Economic Injury Disaster (EIDL) loan, $150,000 in the first round and half a million in the second round, which the business used to turn things around, stock up on fabric, buy extra inventory and pivot with some new products.

“EIDL is the only reason we’re still in business frankly,” Krimmel said. With the cash infusion and new products coming, “I am more optimistic now than I was last year,” she said.

But the EIDL loan program has ended, while higher costs due to goods inflation, supply chain struggles and rising wages, all remain issues challenging the financial picture for small business owners.

Inflation is at a 40-year high, and in the most recent CNBC|SurveyMonkey Small Business Survey for Q1, 47% of small businesses said they were passing price increases to customers, another 32% indicate they will have to raise prices soon if inflation persists (they think it will), and only 33% described business conditions as good. Other recent surveys from the National Federation of Independent Business and Goldman Sachs have presented a similar portrait of the Main Street outlook in an inflationary economy.

To deal with higher costs, more businesses are taking out loans.

In a survey by the U.S. Chamber of Commerce, nearly half, or 45%, said they have taken out a loan to manage higher costs caused by inflation. According to the SBA, 29.3% of small businesses have sought EIDL loans since May 2020, while 9.5% sought bank loans.

Small businesses historically lean…