U.S. small businesses are experiencing stable or improved financial performance, according to a new survey, but an increased number of businesses have grown more cautious about near-term plans for adding employees and spending on business development and investments.
For small businesses looking for growth opportunities, the results from Capital Ones Small Business Barometer survey suggest that most will have access to any financing or credit needed. The quarterly survey polls small businesses across the nation, gauging their current financial condition and business projections for the next six months.
Compared to results from the first quarter, small businesses are slightly less optimistic about economic conditions and an increased number of small businesses plan to hold off on capital investment and job growth plans for the next six months.
The survey results for the second quarter of 2010 suggest that the overall economic outlook of U.S. small businesses has weakened slightly compared to the first quarter. In the first quarter, 39 percent of small business owners surveyed said that economic conditions for their business were improving, but this number dropped to 32 percent in the second quarter of this year. Forty-three percent of small businesses report stable conditions and one-quarter (23 percent) say that economic conditions are getting worse.
While their outlook slipped this quarter, financial performance for small businesses continues to show strength. About one-third (37 percent) of small business owners polled report that their firm's financial position is better than it was one year ago, consistent with last quarter but up 12 percentage points year-over-year. Forty-three percent of small businesses report stable financial performance and only 19 percent say that finances have worsened relative to one year ago, down 17 percentage points compared to the second quarter of 2009.
Although the survey results suggest that the Gulf of Mexico oil spill has had a minimal impact on the national sample of small businesses to date, uncertainties surrounding potential longer-term consequences may be dimming the economic outlook of some small businesses this quarter. To date, only 11 percent of small businesses surveyed say that their business has decreased since the spill, and 8 percent say that business has actually picked up.
However, in the longer term, one-quarter (25 percent) of small business owners or managers nationally believe the disaster will have a moderate to significant impact on their business and an additional 17 percent say that it's too early for them to predict whether or not their business will be affected.
Despite reporting improved or steady finances, most U.S. small businesses polled plan to hold off on additional business development and investment spending in the near-term. Well over half (60 percent) of small businesses say they plan to keep business development and investment spending at current levels for the next six months. One-in-five (21 percent) small businesses in the survey plan to increase investment spending while only 16 percent say they plan to decrease spending. Small firms are also cautious about hiring plans.
Only 26 percent of small business owners surveyed say they plan to add employees to the payroll over the next six months, down 6 percentage points since last quarter but consistent with results throughout 2009. Correspondingly, the percentage of small businesses planning to hold off on hiring over the next six months jumped from 62 percent last quarter to 67 percent this quarter.
The survey results suggest that most small businesses continue to have adequate access to credit and financing. Nearly three-quarters (73 percent) of small businesses surveyed report that they are able to access the financing they need while 19 percent say they do not have adequate access to credit and financing. This quarter, fewer small businesses appear concerned about their ability to meet their financing needs. In the first quarter of 2010, 29 percent of small businesses said securing the capital needed to continue operations would be a major challenge over the next six months, but this number fell to 21 percent in the second quarter.
When asked about funding sources for financing their firm's growth, half (50 percent) of respondents say they will seek financing from a bank or commercial lender while 35 percent will rely on personal savings. Fortunately, most small businesses (78 percent) have developed a strong relationship with their bank or banker, which will help them when it comes time to explore cash management and financing options.
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