Mon. Mar 1st, 2021



Small Business Outlook Grows Dismal

4 min read
By Ilya Leybovich

Although the economic rebound has taken hold across a wide range of industries, new research shows small businesses continue to struggle with lingering recessionary effects, meaning a full recovery for smaller firms will take longer than initially expected.

As more sectors of the United States economy strengthen their outlook for the future and rebuild revenue losses incurred from the economic recession, new reports suggest that the current rebound may be uneven. Larger companies appear to be benefiting more from the economic upswing than smaller firms, which continue to struggle with financing, sluggish demand, rising costs and an unstable employment market.
According to the National Small Business Association’s (NSBA) 2010 Mid-Year Economic Report, released on Tuesday, small businesses continue to contend with the toughest economic climate in the past three years and, as a result, have a considerably more negative outlook on business prospects than in recent years.
Based on a survey of 400 small-business owners, the NSBA found that 41 percent of small firms are still unable to obtain adequate financing. Meanwhile, only 11 percent have hired new employees in the past 12 months and 25 percent of employers cut jobs. The majority of small businesses project no growth in hiring over the next year.
“Today, more small businesses are unable to get financing than at any time in the last 17 years,” Todd McCracken, president of the NSBA, said in an announcement of the findings. “Given the direct correlation between access to capital and job growth, unless small-business owners are able to secure financing, we will continue to see high unemployment.”
Twenty-nine percent of small-business owners expect a recession in the coming year, up from 21 percent six months ago, while 59 percent believe the overall U.S. economy will remain flat for he next 12 months. The number of small-biz owners expecting economic growth fell to 13 percent from 16 percent six months ago.
The NSBA’s findings reflect similar results from U.S. Bank’s 2010 Small Business Annual Survey, which found that 89 percent of small-business owners believe the economy is still in a recession and 75 percent believe it will remain in a recession through 2011.
In terms of overall outlook, the latest Wells Fargo/Gallup Small Business Index, also released this week, decreased to -28 in July, down 17 points from April and marking the lowest reading in the survey’s history.
“Slower consumer spending growth appears to be weighing on small business confidence,” Scott Anderson, a senior economist at Wells Fargo, said. “Small businesses are scaling back on hiring and capital spending plans in the third quarter and remain concerned about the overall financial health of their companies.”
In Wells Fargo’s July survey, 38 percent of respondents said they expect their company’s revenues to increase in the next 12 months, down from 48 percent who said the same in April. Thirty-seven percent expect capital spending to decrease over the next year, up from 29 percent in April.
Among the top challenges cited by small-biz owners in the NSBA report: economic uncertainty (73 percent); decline in consumer spending (47 percent); health insurance costs (37 percent); federal taxes (36 percent); lack of available capital (29 percent); regulatory burdens (28 percent); state and local taxes (22 percent); and foreign competition (10 percent).
The federal government is now trying to alleviate some of the burdens on small businesses, with President Obama urging passage of the Small Business Jobs Act, which would increase access to capital through tax breaks, business credits and loosened restrictions on small-business loans.
“The package includes $12 billion in tax breaks and $30 billion of capital for community banks to promote small-business lending,” Bloomberg News reports. “Banks could leverage that sum into $300 billion of loans that create jobs, according to a Senate summary.”
In addition, the package would increase the thresholds for capital expenditure write-offs from $25,000 and $200,000 to $500,000 and $2 million, respectively. The plan would also encourage entrepreneurship by increasing the amount of deductible start-up expenditure by 10 times. Legislators hope these measures, if passed, would reinvigorate the small-business sector, which traditionally accounts for the bulk of U.S. job creation.
“There is no question that this sector will be central to our economic recovery,” Rick Hartnack, vice chairman and head of consumer banking at U.S. Bancorp, said in an announcement of the U.S. Bank findings. “Taking the time to listen to their perspective and understand what motivates them is essential to providing the financial, legislative and moral support they need to thrive.”
2010 Mid-Year Economic Report
National Small Business Association, July 27, 2010
NSBA Releases Economic Report: Outlook Dismal
National Small Business Association, July 27, 2010
2010 U.S. Bank Small Business Annual Survey
U.S. Bank, July 28, 2010
… Small Business Owners Continue to See Lower Business Prospects
Wells Fargo, July 27, 2010
Summary of the Small Business Jobs Act
U.S. Senate, July 27, 2010
Obama’s $300 Billion Small-Business Loan Plan Faces Senate Test
by Laura Keeley
Bloomberg News, July 28, 2010
Small Business Owners Are Resilient Survivors Who Expect a Promising Year Ahead…
U.S. Bank, July 28, 2010

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