47. United States

The U.S. economy in 2022 continued to navigate an unprecedented global pandemic and weathered an additional price shock to energy and food caused by the large-scale aggression of Russia against Ukraine. Despite these and other challenges, the economy remained resilient with moderate output growth, strong employment growth, and inflation that peaked and then started to moderate late in the year.

The large-scale aggression of Russia against Ukraine in February created acute supply constraints on energy, food, and other commodities that raised inflation globally. In addition, in the first half of the year, COVID-19 continued to weigh on economies across the world, especially when its Omicron variant caused cases and fatalities to surge in the United States and abroad. Already grappling with transitory inflation after the height of the pandemic, the U.S. economy witnessed a four decades-high level of inflation, peaking at 9.1% in June of 2022.

2022 saw a pivot from many years of accommodative financial conditions. Monetary policy turned to fighting inflation and fiscal policy focused on strategies to complement that fight, while also working to guide the economy to stable and steady growth in 2022 and in the future. Even before the year began, government spending and deficits fell closer to pre-pandemic trends. As a result of the historic pace of U.S. economic and labour market recovery, the federal government spent about USD 1 trillion less on pandemic and economic support in 2022 than in 2021, slashing the U.S. federal budget in half (U.S. Treasury Fiscal Data, 2022[1]).In March, the Federal Reserve began to reverse its asset purchase programme and started what became a swift series of interest rate hikes; stock markets and residential investment declined quickly. Faced with tightening monetary conditions, the U.S. economy showed signs of adjustment. GDP growth slowed, with a 6.5% increase in nominal GDP in the fourth quarter compared to 7.7% in the third quarter of 2022 (U.S. Department of Commerce, Bureau of Economic Analysis, 2022[2]). Some measures of labour market tightness and inflation began to moderate, with inflation showing an easing at the end of the year.

Borrowing, including business loan originations and commercial and industry (C&I) loans, continued to grow at a slower pace in line with GDP, driven by an increase in consumer spending and companies increasing inventories. Tightening of lending conditions occurred gradually throughout the year and was most widely reported for premiums charged on riskier loans, costs of credit lines, and spreads of loan rates over the cost of funds. U.S. household and business indebtedness and debt servicing ability remained stable, with the effect of rising interest rates being offset by higher business earnings (Board of Governors of the Federal Rserve System, SLOOS, 2023[3]).

While some economic indicators exhibited a modest response to rising interest rates, labour conditions and consumer spending were less affected. The labour market was characterized by an unemployment rate near a historically low level, robust payroll gains, a high level of job vacancies, and elevated nominal wage growth. The civilian unemployment rate was a stable 3.5% as of December 2022, and a consistently large number of job openings implied a continual imbalance between labour supply and labour demand (U.S. Department of Labor, 2023[4]). Growth in consumer spending was stronger than expected and could be attributed to the strong labour market and households spending down excess savings accumulated during the pandemic.

Though SMEs reported progress in achieving post-pandemic operational recovery, they were less optimistic regarding future business conditions. The U.S. Census Small Business Pulse Survey indicated that most small businesses had either returned to normal operations or expected to return to normal operations within two to three months, with the fastest expected recoveries occurring in the utilities and finance and insurance industries (U.S. Department of Commerce, U.S. Census Bureau, 2022[5]) . However, rising inflation and labour shortages following the pandemic hampered small business owners’ expectations of better business conditions. According to the National Federation of Independent Businesses (NFIB), while SMEs recorded high levels of job openings, almost all of them reported few or no qualified candidates for the positions they were trying to fill. 75% of small business owners surveyed in the NFIB Optimism Index reported lower profit trends, most frequently attributed to a rise in the cost of materials. Nevertheless, 89% of owners reported that their credit needs were satisfied or that they were not interested in a loan (NFIB, 2023[6]) .

Following record-breaking growth in 2021, venture capital deal value decreased each quarter in 2022 for a year-over-year decline of 28.8%. This reflects increasing interest rates, less attractive risk-return profiles, and therefore a relatively lower upside potential for venture capital asset classes compared to years prior. Late-stage deal value suffered the biggest hit of roughly 35%, while total angel and seed deal value actually increased (Pitchbook, NVCA, 2023[7]) .

The U.S. Small Business Administration (SBA) defines size standards for which businesses can be considered “small business” in the United States. Size standards vary by industry and are generally based on the business’ number of employees or average annual receipts. SBA issued the most recent size standards in January 2022. In addition to meeting these numerical standards, to be considered a small business by SBA, a business must be for-profit, independently owned and operated, be physically located in the United States, and may not be nationally dominant in its industry. However, generally, U.S. businesses with fewer than 500 employees are considered small businesses.

As of 2022, there are 33.2 million small businesses in the United States, which make up 99.9% of all U.S. businesses and account for almost two-thirds of net new private sector jobs. Of those, 88% have fewer than 20 employees. Small businesses employ 61.7 million people which account for 46.4% of all U.S. employees. 56 million of those workers are employed at firms with fewer than 50 employees (The White House, Council of Economic Advisers, 2023[8]) . About 42% of U.S. small businesses are women-owned, 18.7% are minority-owned, and 5.7% are veteran-owned (SBA, Office of Advocacy, 2022[9]). Americans filed nearly 10.5 million applications to start new businesses in 2021 and 2022, the two highest years on record for new business formation (The White House, 2023[10]). Since the Biden Administration took office, small businesses have created 3.1 million jobs, a near-historic level (The White House, 2023[10]).

SMEs also strengthen the U.S. economy through international trade. In 2021, there were over 271,000 U.S. SMEs, including 66,000 manufacturers, that exported goods worth a total of USD 542 billion. Though this comprised less than one-third of total U.S. goods exported, SMEs made up 97.4% of goods-exporting firms in the country. The pandemic impacted export opportunities, with the number of exporting SMEs decreasing by 5.8% compared to a 3% decrease for large exporters in 2021. However, the SMEs that continued exporting showed remarkable resilience, as the value of SME goods exports fell by 10.2% compared to a 14.4% decline for large exporters (U.S. Department of Commerce, International Trade Administration, 2023[11]) .

According to the SBA’s Office of Advocacy, the number of small business employer firms grew after a lull during the early stages of the COVID-19 pandemic. In comparison to the Great Recession, the effects of COVID-19 on small employers were muted, and by the third quarter of 2022, both small and large firms had recovered all the net jobs lost in the second quarter of 2020 (SBA Office of Advocacy, 2023[12]).

Based on the Federal Reserve’s 2022 Small Business Credit Survey, the share of small businesses operating at a profit rose from 35% in 2021 to 45% in 2022. Despite this, firms’ self-reported financial conditions remained the same. Over the same period, the index for revenue growth in the next 12 months fell from 42% to 35% and remained significantly below pre-pandemic levels, corresponding with SMEs’ general negative outlook on future business conditions. The most reported operational challenges experienced by small firms were hiring and retaining workers and supply chain issues. The most reported financial challenge was a rising cost of goods, services, and/or wages, cited by 81% of respondents (Federal Reserve Banks, 2023[13]) . These issues likely contributed to the stronger loan demand and credit line usage seen in the first quarter of 2022.

As interest rates increased through 2022, banks reported tightening standards for C&I and commercial real estate loans. Accordingly, demand for all loan sizes declined. Small business bank loan demand dropped to levels seen during the COVID-19 recession, nearly approaching the decline that occurred during the Great Recession. The U.S. Department of the Treasury likewise reported a net decrease in small business lending through the Small Business Lending Fund (SBLF) as of the fourth quarter of 2022 (U.S. Department of the Treasury, 2023[14]) . New small business bank loans in terms of dollar volume were relatively stable, while the absolute number of loans declined, leading to higher average dollar loans. The number of small business loan applications per bank and the percent of approved small business loan applications slightly declined, particularly in the second half of 2022 (SBA Office of Advocacy, 2023[12]) .

With the end of the COVID Economic Injury Disaster Loan and the Paycheck Protection Program (PPP) pandemic assistance programs offered through SBA, the stock of outstanding SME loans began to decrease in 2021. The percent of small businesses with outstanding debt decreased to near pre-pandemic levels and, as pandemic-related financial assistance became less available, firms turned to more traditional sources of financing. Surveyed small businesses most commonly applied for lines of credit and were more likely to seek financing from large banks than other sources. However, applicants who sought financing at small banks reported fewer challenges than applicants at other sources. Applicants that sought funding through online lenders particularly noted issues with high-interest rates and unfavourable repayment terms. According to the Small Business Credit Survey, personal sources of funding such as personal savings, friends, and family were the most common sources of financing for respondent employer firms in 2022. The use of personal sources of funding increased 10% between 2017 and 2022 and plausibly increased as interest rates rose throughout the year (Federal Reserve Banks, 2023[13]).

In 2022, the Federal Reserve raised the federal funds rate seven times for a total of 425 basis points. Federal Deposit Insurance Corporation (FDIC) quarterly reports on credit conditions showed that banks implemented progressively tighter standards throughout the year. Banks reported a tightening of C&I lending conditions, citing a more uncertain economic outlook, a reduced tolerance for risk, and the worsening of industry-specific problems as a reason for doing so. Banks tightened loan covenants and collateralization requirements, while some also tightened the maximum size of credit lines as well as the maximum maturity of loans or credit loans. Tightening of credit conditions occurred at a quicker pace for larger and middle-sized firms than for small firms, which is also reflected in the relative spread in interest rates between small and large firms. The average interest rate for SMEs was 4.37% compared to 4.85% for all firms (Federal Reserve Bank of Kansas City, 2023[15]). In the first half of 2022, C&I loan demand was strong. However, as credit conditions worsened, credit line inquiries and loan demand significantly decreased (FDIC, 2023[16]).

Rising interest rates and less attractive risk/return profiles drove investors toward more traditional asset classes and away from what was a flourishing venture capital market in 2021. At the same time, asset-based financing increased as market uncertainty severely diminished investor risk appetite and banks reported tightened collateralization requirements. Though most venture capital indicators remained significantly high when compared to historical levels, deal activity decreased for a consecutive four quarters across 2022 and sharply dropped in the back half of the year, signalling investment sensitivity.

Early-stage deal activity peaked at the end of 2021, with total quarterly value declining 51% between the first and last quarter of 2022. In comparison, late-stage deal activity peaked in the third quarter of 2021 and saw a quarterly value decline of 57% over the same period. In addition, exit activity descended to just USD 71.4 billion in 2022, its lowest value since 2016. Venture capital-backed companies also experienced a strong slowdown, with only 14 public listing occurring in the fourth quarter.

Angel and seed value showed resilience in 2022, with seed value reaching an annual high of USD 22.1 billion. However, despite the year-over-year growth, angel and seed activity showed a consistent decline when observed quarter-to-quarter. As a result of the annually high deal value paired with shrinking deal counts, the median seed deal in 2022 was USD 2.7 million, a 19.4% increase year-over-year. In fact, median seed deal increased to USD 3 million in the fourth quarter. This median seed deal growth could be explained by the changing macroeconomic conditions in which startups may be raising more capital to increase runway, to retain talent through competitive compensation amidst record inflation levels, and to avoid raising more capital later in a harsher environment (Pitchbook, NVCA, 2023[7]).

Total business bankruptcies slightly decreased after a steep decline in 2021, attributed to government stimulus programmes and low interest rates. However, small businesses reported an increasing number of filings throughout 2022 (American Bankruptcy Institute, 2023[17]) . The CARES Act of 2020 raised the debt limit for small business bankruptcy eligibility from USD 2.7 to USD 7.5 million. In June 2022, the Bankruptcy Threshold Adjustment and Technical Corrections Act extended the USD 7.5 million debt cut-off for another two years, which could explain the increase in filings for small businesses, specifically.

Loan delinquency indicators for both total and small businesses slightly decreased year-over-year and remained low relative to historical levels (Board of Governors of the Federal Reserve System, 2023[18]) . However, indicators for small business loan delinquencies were rising throughout the back half of 2022, suggesting that rising interest rates put pressure on repayment rates, particularly for SMEs with more limited refinancing options (Thomas Reuters PayNet, 2023[19]).

SBA works with approximately 5,000 banks and credit unions, 250 Community Development Corporations (CDCs), over 170 non-profit financial intermediaries and Community Development Financial Institutions (CDFIs), and 300 small business investment companies (SBICs). The SBA Office of Capital Access has several programmes that provide direct loans and loan guarantees for a wide range of products designed to meet the diverse financial needs of small firms throughout their life cycle, starting from small start-ups to established firms. The largest of these programmes, the 7(a) Loan Program, provides loan guarantees for working capital loans of up to USD 5 million to new and existing small businesses. The second largest programme, the CDC/504 Loan Program, provides loan guarantees for loans up to USD 5.5 million to be used for the purchase of major fixed assets, such as new facilities or equipment. In 2022, the SBA provided USD 117.5 billion in 7(a) loan, 504 loans, and microloan funding (SBA, 2022[20]).

Since the COVID-19 crisis, the SBA has swiftly supported small businesses. The SBA Economic Injury Disaster Loan (EIDL) programme, which existed prior to the pandemic, benefits businesses directly affected by a disaster and addressed the adverse economic impact of COVID-19 on SMEs. The coronavirus was deemed as a disaster under the EIDL, allowing small businesses to apply to both the COVID-19 EIDL and the newly established EIDL Advance programme. The EIDL Advance programme allowed eligible EIDL applicants to receive up to USD 15 thousand in funding from SBA that did not need to be repaid. Under EIDL Advance, the SBA approved more than all combined prior disaster assistance lending in the agency’s history.

The Coronavirus Aid, Relief and Economic Security (CARES) Act and subsequent legislation provided the SBA with nearly USD 1 trillion—the largest outlay of capital in the agency’s history. Some of the programmes included USD 562 million to support disaster loans and USD 221 billion in tax reductions and deferrals. These included a 50% of payroll tax credit for severely affected businesses that did not benefit from business interruption loans and agreed to maintain employment levels.

Under the CARES Act, the SBA launched the Paycheck Protection Program (PPP) as a central piece of the U.S. COVID-19 policy response. The principal on these loans, used for working capital for eight weeks, was forgiven if the business maintained pre-crisis employment levels. The following round of PPP included a new streamlined process for writing off PPP loans. The process of forgiveness was simplified for loans of USD 150 thousand or less, allowing businesses to attest on a one-page form that they used the funds for payroll and other eligible business expenses. Following the CARES Act, Congress passed the American Rescue Plan Act amounting to USD 1.9 trillion, including USD 15 billion in new Targeted EIDL Advance payments as well as USD 28.6 billion in grants for restaurants affected by COVID-19 closures. The government also introduced changes to the PPP to provide better access to small and minority businesses and reserved USD 1 billion of support for sole proprietors. Other amendments to the PPP included expanding eligibility to non-profits and adding a further USD 7.25 billion to the programme.

The Department of the Treasury has also played a significant role in bolstering CDFIs and other lenders that support SMEs through the Emergency Capital Investment Programme (ECIP). Established by the Consolidated Appropriations Act, 2021, ECIP is authorized to provide up to USD 9 billion in capital to CDFIs and minority depository institutions (MDIs) that will allow them to expand loans, grants, and forbearances for eligible SMEs and consumers, particularly those in minority communities. The Department of the Treasury also oversees the State Small Business Credit Initiative (SSBCI), a nearly USD 10 billion programme to support small businesses and entrepreneurship in communities across the United States by providing capital and technical assistance to promote small business stability, growth, and success. The SSBCI includes the Capital Programme and the Technical Assistance Grant Programme. Under the Capital Programme, participating jurisdictions implement credit and equity/venture capital programmes to provide capital to small businesses. Under the Technical Assistance Grant Programme, Treasury supports programmes that provide legal, accounting, or financial advisory services to qualifying small businesses (U.S. Department of the Treasury, 2023[21]).

In furtherance of its support for minority-owned businesses, the Biden Administration strengthened the Minority Business Development Agency (MBDA) through the passage of the Infrastructure Investment and Jobs Act, better known as the Bipartisan Infrastructure Bill, on November 15, 2021. As part of the Bipartisan Infrastructure Bill, the Minority Business Development Act of 2021 permanently authorized the MBDA, codifying select existing programmes, adding new programmes and roles, and expanding the scope and scale of MBDA services (Congressional Research Service, 2021[22]). It also established a Senate-confirmed Under Secretary of Commerce as the lead of the MBDA, increasing the agency’s grant-making capacity to focus on local communities, creating a council to advise the Under Secretary and support minority business enterprises, and developing an entrepreneurship education grant programme. In December 2022, in partnership with the Treasury Department, MBDA launched the USD 93.5 million Capital Readiness Programme funding competition for incubators and accelerators to jumpstart underserved entrepreneurs. Under this programme, incubators, accelerators, and other eligible organizations provide business services to bolster entrepreneurs’ access to capital opportunities (The White House, 2023[10]).

The Export-Import Bank of the United States (EXIM) plays a crucial role in providing loans and loan guarantees to support U.S. manufacturers seeking to export to foreign markets. Over the course of 2022, EXIM made momentous strides to assist U.S. small businesses as they engaged in competitive foreign markets. Of the USD 5.9 billion in financing EXIM authorized in Fiscal Year 2022, USD 1.5 billion went to small businesses. Nearly 90% of total transactions were directly authorized for small business exporters (The White House, 2023[10]). On April 14, 2022, the EXIM Board of Directors unanimously voted to approve the Make More in America Initiative, a new tool that unlocks financing for U.S. manufacturing, strengthens U.S. global competitiveness, closes critical supply chain gaps, and supports American jobs. The initiative makes the agency’s existing medium- and long-term loans and loan guarantees available for export-oriented domestic manufacturing projects as part of President Biden’s whole-of-government efforts to strengthen the resiliency and security of America’s supply chains (EXIM, 2022[23]).


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