Small Business Owners Optimism at 6 Year High
The great recession that hit the United States in at the end of 2007 and continued for a year and six months hit small businesses hard. Many were unable to survive due to the severity of the financial crisis, but those who knuckled down and managed to keep their heads above the water are starting to feel that the financial outlook is improving and life is getting back to normal.
The economy is continuing in its recovery and there are signs that while small business lending is far from at the level it was pre-recession, the financial environment is starting to recover, albeit slowly. Small business lending may have been languishing for some years, but a slight relaxation of lending criteria and greater willingness of the banks to lend to small businesses has helped to create a more positive outlook. Alternative finance options are also believed to have helped many small businesses pull through a particularly difficult time. While there is clearly a considerable way to go before small business lending levels return to pre-recession levels – or at least approach those before the great recession hit – overall the optimism of small business owners is relatively high.
The Wells Fargo/Gallup Small Business Index is a quarterly survey conducted to gather the opinions of small business owners about their perception of the economic climate and their outlook for the future. The survey asks six questions covering feelings on the current situation with six relating to the future and how respondents feel about the prospects of their business. In theory, the index can range from score of minus 400 indicating the bleakest possible outlook to plus 400, with zero being total indifference. The Wells Fargo/Gallup Small Business Index was first conducted in 2003 and during the 11 years that the survey has been run, the maximum positive score was +114 which was reached in quarter four of 2006. The lowest score of -28 was recorded in the third quarter of 2010.
In January this year the score stood at +45, rising to +47 in April with the score now standing at +49, its highest point since quarter 3 of 2008. The improvement may only be slight but it is a sign that small business owners not only feel their current situation is good, but that there is hope that the coming months will see their fortunes improve considerably.
There are a number of factors believed to have improved optimism. Cash flow is getting better, with a 55% rating of somewhat good or very good and revenues have improving for small business owners over the past 12 months. Greater small business loan approvals and better access to business financing options are key, although there is still a considerable way to go with only 32% saying that it has been either very or somewhat easy to obtain the business working capital they require. Ten percent of the survey’s respondents however, say that getting small business loans, vendor financing or access to other methods of obtaining capital is still a major issue. 38% of respondents believe that small business finance opportunities will improve in the near future.
Making products available or expanding product lines is an issue affecting 10% of those who took part in the survey, although the extent to which inventory financing is a problem is not clear. The biggest challenges currently being faced is competition from companies on the internet and from larger organizations, while 14% state that attracting more customers and getting their business noticed is a major hindrance to recovery.