New “Credit Card Entrepreneurs” research paper reveals micro-businesses and the self-employed have been most sensitive to higher interest rates

New research by a team of economists led by Professor Ufuk Akcigit reveals which kinds of businesses have been most sensitive to higher interest rates since 2022, how they have been affected, and the critical role that credit cards play in business growth. 

The research builds on the findings of the recent Intuit QuickBooks Small Business Index Annual Report using anonymized data from up to 1.6 million Intuit QuickBooks customers. In the paper, Prof. Akcigit’s team reveal credit cards gave businesses much-needed flexibility and access to funds after the Federal Funds Rate started to rise in March 2022—supporting growth—but also increased their exposure to interest charges. 

Businesses making the most use of credit cards when the federal rate hit 5% included startups, very small businesses, the self-employed, businesses with low cash reserves, and businesses with the most overdue invoices. For example, among the self-employed, average payments to credit cards were up to 10 times higher than payments to term loans. 

Businesses generally reduced their credit card spending after the spike in interest rates but made larger reductions in their credit card payments. As a result, they had a 60% increase in interest charges and a 27% increase in the rate of missed payments. Similarly, when facing challenges such as financial constraints, economic uncertainty, or late payments, they cut their credit card payments by 3.2%, on average, but did not change their savings or loan payment behavior. 

But the research also underlines that well-managed credit card financing has an important role to play, alongside other forms of financing, to support small business growth. The Small Business Index’s recent annual report (written by the same team of economists, using the same data sources) found that small businesses with more access to credit card financing after interest rates spiked had up to 4% higher employment growth and up to 30% higher revenue growth.

New insights

• Slower growth among some small businesses since 2022 can be attributed to 16% lower credit card balances among customers of banks that were not able to offer as much financing after the federal rate increase.¹ This confirms the connection between credit card financing and small business growth. 
• When the federal rate rose above 5% in July 2022, small businesses payments to credit cards were three times higher than payments to term loans. 

Four types of businesses were found to be most reliant on credit cards when the federal rate spiked:

• Self-employed businesses (non-employers) had 10 times higher credit card payments than loan payments—allocating 16% of their cash to credit card payments compared to only 1.5% for loans.

• Cash-poor small businesses (businesses with the least cash reserves) had five times higher credit card payments than loan payments—allocating 10% of their cash to credit card payments compared to only 2% for loans. For comparison, businesses with larger cash reserves had a more even split, allocating 5% to credit card payments and 4% to loan payments.
• Businesses with more overdue invoices were significantly more likely to report greater reliance on credit cards for financing (vs other options) compared to those with fewer overdue invoices, underlining the importance of healthy cash flow—and prompt payments by customers. 
• Younger businesses: The younger the business, the greater the reliance on credit cards. Businesses less than 5 years old allocated 8% of their cash to credit card payments compared to only 3% for loans. Businesses aged 21+ years allocated just 4% of their cash to credit card payments and 2% for loans.

At $26,000 per small business, monthly credit card spending was already high when the federal rate spiked (more than double the pre-pandemic average), while monthly repayments were lower, at $24,000 per business.

• Then, after interest rates rose above 5%, small businesses did reduce their credit card spending, but they made even larger reductions in their payments on credit card balances, increasing the risk of interest charges. 
• As noted above, when dealing with negative shocks such as financial constraints, economic uncertainty, or late payments, small businesses reduced their credit card payments by 3.2%, on average, but did not change their savings or loan payment behavior.

• Combined with higher interest rates, this caused the interest charges to increase by 60% and the rate of missed payments (delinquencies) to increase by 27%, from 2.2% to 2.8%. Nearly half of the observed rise in delinquencies during this time stemmed from the cumulative burden of higher credit card interest payments.

These findings apply to a large and important population of small businesses

The youngest and smallest businesses in the economy are numerous and usually create jobs much faster than older, bigger businesses. Plus, a long-term increase in self-employment has made these kinds of businesses (also known as non-employers or solopreneurs) more common. The latest available official statistics show:

• Smallest: Businesses with less than 10 employees account for 80% of all US employers and employ more than 13 million people in the US, according to the latest estimates. 

• Youngest: New businesses (those less than a year old) create 12% of new jobs despite only having a 2% share of employment.² Younger businesses create jobs 23 times faster than businesses established 11-15 years ago.³
• Self-employed: More than 8 out of 10 of all US businesses (84%) have no employees (self-employed). In 1977, only 76% were non-employers.

1. Specifically, the 16% difference in growth is between customers of banks with high income gap scores and customers of banks with low income gap scores. Download the 2025 Intuit QuickBooks Small Business Index Annual Report for full details and definitions.

2. Source: 2025 Intuit QuickBooks Small Business Index Annual Report

3. Source: 2023 Intuit QuickBooks Small Business Index Annual Report