.A couple of reports this week from prominent business news sources suggest the world of small business software may be entering a tough period, driven by higher interest rates and limited access to credit.
These constraints are apparently leading many small business owners to curtail software purchases, according to warnings issued by some of the largest players in SMB software, as reported this week by CNBC and PYMNTS.com.
Among the companies warning of rough waters include HubSpot, Paycom, Zoominfo, and Bill.
For example, according to PYMNTS, Paycom, which offers payroll and HR software, has recently said its 2024 growth would come in at around 10% to 12%, which is well short of what Wall Street analysts had been forecasting.
Last month, payments software player Bill Holdings took a hit on its share price when it announced lower 2024 guidance.
ZoomInfo saw its shares fall in late October after it forecasted weaker-than-expected results in Q4.
CNBC took more of the person-in-the-street approach in reporting its story on the negative trends in SMB software. The business channel interviewed Nick Martin, co-founder and CEO of Joe Coffee, a platform for coffee shops that compete with Starbucks.
Martin told CNBC that his company has cut back on HubSpot software subscriptions in a move to save money.
Two Trends
PYMNTS cited two trends that help explain why SMBs are cutting back. And, why so many big SMB players are hoisting signal flags.
The first trend is interest rates.
PYMNTS cites National Federation of Independent Business data that the average interest rate small businesses paid on short-term loans has been at 9% or higher for the last three months, compared to 6.7% in 2022 and 4.6% in August 2021. OK, that’s gonna sting a little.
And the other factor is access to credit. It is difficult for any business to invest without access to capital. Even if the businesses and amounts involved are small.
Citing its own PYMNTS Intelligence data, PYMNTS reports that as of July this year, just 47% of SMBs generating annual revenues of $10 million or less had access to business or personal financing.
Again citing its own data, PYMNTS found that 53% of sub-$10 million SMBs reported having “no current access to credit.” It is not at all surprising that this problem grows more acute the smaller the company involved. Companies with annual revenue of $150,000 or less are hit the hardest by the credit crunch.
