NSBA Report Shows Small Businesses Struggling
Aug 3, 2011

NSBA today released its 2011 Mid-Year-End Economic Report which shows that, despite a few bright spots including measured growth in past and projected hiring, America’s small businesses have diminishing confidence in both the U.S. economy and the future of their own firms.

“Eighty-eight percent of small-business owners anticipate a flat or recessionary economy in the coming year, the highest it’s been in two years,” stated NSBA President Todd McCracken. “This negative economic outlook is causing a growing lack of confidence among small-business owners.”

Contrary to a more positive outlook back in December, 45 percent of small businesses today—up from 40 percent—said they expect no growth opportunities whatsoever in the coming year. Thirty-six percent of small businesses report an inability to garner adequate financing, and 19 percent—up from 13 percent six months ago—are paying credit card interest rates of 20 percent or higher. The rising cost of health care continues to plague small businesses with nearly one third reporting they held off on hiring a new employee due to those costs.

When asked which issues are most important for policymakers to address, small businesses ranked reducing the national deficit, reducing the tax burden, reigning in the costs of health care reform and regulatory reform their top priorities.

“Nearly one in three small-business owners named the growing U.S. debt the number one challenge facing their business,” stated Larry Nannis, CPA, NSBA Chair and shareholder at Levine, Katz, Nannis + Solomon, P.C. “Lawmakers ought not downplay the ramifications of the ongoing deficit debate—and lack of a long-term solution—on America’s small-business owners.”

Although the general sentiment of the small-business community is one of concern and economic uncertainty, there were a few somewhat positive developments. Small businesses reported modest gains in employment resulting in the lowest net decrease in employment in three years. Furthermore, there was an increase in the number of small businesses that projected hiring in the coming 12 months.

Among the key findings:

  • Small-business owners have an increasingly negative outlook on the U.S. economy: when asked to compare today’s economy with the economy six months ago, 47 percent said it is worse, up from 29 percent who said the same in December 2010.
  • Despite a few somewhat positive developments in past employment gains and projected hiring, there was an increase—from 40 percent up to 45 percent—of small-business owners who do not believe there will be any growth opportunities in the coming year.
  • The overwhelming majority of small-business owners (88 percent) expect a flat or recessionary economy in the coming year, and the number of small businesses expecting a recession more than doubled in the last six months.
  • Although the majority of small-business owners (64 percent) are confident about the future of their business, more than one-third (36 percent) are not—up from 34 percent in December 2010.
  • Small-business owners (68 percent) cited economic uncertainty as the most significant challenge to the future growth and survival of their business. This was followed by decline in consumer spending (40 percent), cost of health insurance benefits (33 percent), regulatory burdens (31 percent) and the growing national debt (30 percent).
  • Nearly one in three small-business owners said the U.S. debt was a major challenge, up from 19 percent  just six months ago.

Business Growth

  • In the last 12 months, 32 percent of small businesses reported increased profits—down from 36 percent in December 2010.
  • A positive note: for the first time in three years, revenues showed a net increase of two percent due to a drop from 43 percent to 37 percent in those reporting revenue decreases.
  • Twenty-two percent of small businesses reported employment gains, up from 15 percent in December 2010, resulting in the smallest net employment decrease three years.
  • When asked about the coming 12 months, 49 percent of small businesses, down from 54 percent, project revenue growth, and 43 percent project profit increases, down from 44 percent. Both indicators show declines from the last survey. 
  • Employment projections continue to grow with 29 percent of small-business owners projecting hiring in the coming 12 months.

 Financing

  • The number of small-business owners who report being able to obtain adequate financing for their business remains unchanged from six months ago at 64 percent.
  • In the last six months, there was an increase in small-business use of bank loans, up from 45 percent to 49 percent. 
  • Today, 78 percent of small businesses carry some kind of debt, with the average total debt equaling $1.1 million.
  • There appears to be a slight easing of credit: when asked what are the most significant challenges facing their business, 22 percent said lack of available capital—down from 26 percent in December 2010 and 29 percent in July 2010.
  • The number of small-business owners who report being able to obtain adequate financing remains unchanged, however, from six months ago at 64 percent. Still, more than one-third (36 percent) cannot get adequate financing. 
  • There was a six point jump from 13 percent to 19 percent of businesses who pay 20 percent or more in credit card interest rates, and the average interest rate charged on small-business cards is 15 percent. 
  • Among small-business owners for whom capital availability has been a problem, 36 percent have been unable to expand the business and 18 percent—down from 24 percent—have been forced to reduce their number of employees. 
  • Ten percent of small businesses report being unable to increase inventory to meet demand and 18 percent said they were unable to finance increased sales, meaning that a lack of capital is hampering growth opportunities.
  • Since 1993, when NSBA began asking these questions, there has been a direct correlation between access to capital and job growth—when capital flows more freely, small businesses add new jobs.

 Public Policy

  • Small-business owners ranked reducing the national deficit (34 percent,) reducing tax burden (16 percent,) reigning in the costs of health care reform (13 percent,) reducing the regulatory burden (13 percent,) and increasing access to capital for small businesses (13 percent) their top issues for Congress and administration to address.
  • There was a significant increase over the last six months among small-business owners who rated “reduce the national deficit” as their number one priority for policymakers to address, up from 23 percent to 34 percent. 
  • There appears to be a slight increase in small businesses understanding of the new health care law: 18 percent, down from 32 percent, report not understanding at all how their business will be impacted. 
  • Since the health care law passed, 44 percent reported increases of more than 11 percent.
  • Just six months ago, 24 percent of small businesses reported holding off on hiring whereas today, 32 percent—one in three—small business owners are not hiring directly due to increasing health care costs.

Please click here to view the full report.