Economic survey finds brightest outlook since 2012
Union Bank recently announced the results of its annual Small Business Economic Survey, which showed that small business owners overall have the brightest economic outlook in four years. In 2014, nearly a third of entrepreneurs hired staff and significantly fewer reported layoffs.
For the first time since 2012, the majority of small business owners overall believe the economy is heading in the right direction, with an all-time high of 90 percent believing their business is headed in the right direction. The rise in optimism reflects data showing that more entrepreneurs worked longer hours in 2014 due to increased business (61 percent, up 6 points from 2013).
Despite the rosier economic outlook, hints of restraint remain in capital and labor budgets for 2015, with most Central Coast owners planning to maintain the same capital spending and staffing levels as 2014. In addition, one-fifth of Central Coast owners plan to move their business out of state, primarily due to better business opportunities and to be closer to family, and statewide (20 percent, up 8 points) plan to move their business out of state, primarily due to tax burdens.
“The survey results reflect what we’re seeing among small business owners who are encouraged about the economy and gradually hired additional staff in 2014,” said Union Bank Managing Director Todd Hollander, head of Business Banking. “Taxes remain a challenge for small business owners, especially in California, but as the economy continues to strengthen, labor and capital budgets will likely grow.”
Increasingly, Central Coast small business owners are showing more optimism about the national economy, with significantly more owners than last year (70 percent, up 45 points) believing that the national economy is headed in the right direction. Slightly fewer Central Coast owners believe their state’s economy is headed in the right direction, (44 percent, down 6 points). However, statewide, for the first time since 2012, more small business owners (61 percent, up 38 points from 2012) believe that their state’s economy is heading in the right direction.
Among the industries surveyed, 100 percent of owners from the personal services sector (auto repair, salons, dry cleaning, etc.) believe their business is headed in the right direction (up 10 points); more owners from this sector also expressed optimism about the direction of the national economy (70 percent, up 42 points). In terms of their state economy, more owners from the professional services industry (physicians, certified public accountants, attorneys, etc.) believe their state’s economy is headed in the right direction (67 percent, up 5 points).
Retail store owners expressed the most pessimism about the economy — half believe the national economy is heading in the wrong direction and 53 percent believe their state economy is headed in the wrong direction.
Access to Credit
In the Central Coast, more entrepreneurs (20 percent, up 6 points) applied for a loan or access to credit in 2014 than in 2013.
In 2014, more minority business owners (25 percent) applied for a loan or access to credit compared with respondents overall (13 percent). Of those who applied, more minority business owners (81 percent) were approved compared with 76 percent overall. Among those denied for loans, significantly more owners overall (58 percent) were able to find alternative financing in 2014 (up 20 points) than the previous year.
“Helping small business owners obtain credit remains a priority for us, and it’s encouraging that alternative financing is a growing option overall and that more minority business owners were approved for loans in 2014,” said Kirsten (Didi) Hakes, head of SBA Lending at Union Bank. “Union Bank’s Business Diversity Lending and Community-Based Financing programs are two ways we’re helping to provide loan opportunities to women-, minority- and veteran-owned businesses, and we continue to see interest in these programs from business owners.”
Union Bank, recently ranked* the country’s fifth largest SBA 504 lender in both units and volume, partners with community-based financing organizations with a goal of transitioning the companies into traditional business financing with Union Bank once their companies have grown, and many of the bank’s CBF partners also provide free or low-cost technical assistance programs (i.e. business planning, accounting, marketing, etc.) to assist with the continued goal of building credit worthiness of the client and investing back into the small business community.
With a decrease in the rate of Central Coast owners who thought it was easier accessing credit in the past two years (20 percent, down 9 points), most owners (70 percent) do not plan to apply for credit in 2015.
Labor and Capital Costs
In the Central Coast fewer owners incurred layoffs in 2014 than the previous year (14 percent, down 8 points). Owners in the Central Coast (57 percent) were more likely than any other region surveyed to hire staff in 2014.
In the Central Coast, fewer owners (10 percent, down 11 points) plan to add staff in 2015 than the previous year. The Central Coast and Fresno County are the only regions not expected to cut staff this year.
Surprisingly, retail store owners — the sector reporting the most pessimism about the economy — were more likely than owners from other industries to add staff in 2014 (32 percent), while owners from the personal services industry — the sector reporting the most optimism about the direction of their business and the national economy — were more likely to cut staff (22 percent) in 2014.
Most Central Coast owners are maintaining the same capital spending budgets this year (60 percent) and significantly fewer owners than last year plan to both increase capital expenditures (30 percent, down 27 points) and cut capital expenditures (10 percent, down 11 points).
Among industries, significantly more owners in the personal services sector (36 percent) plan to increase capital expenditures, while significantly more in the retail sector (41 percent) plan to decrease capital spending.
Government and Health Care
More Central Coast owners than the previous year (30 percent, up 9 points) rated government efforts to stimulate business as good or very good and more Central Coast owners believe that government actions taken since the economic downturn have benefited their business than last year (40 percent, up 4 points). Overall, positive perceptions about government efforts were higher among owners of certified women and women-, minority- and veteran-owned businesses than non-certified businesses, with nearly a third (30 percent) of certified businesses rating government efforts as good or very good compared with 21 percent of non-certified businesses.
As expected based on the 2014 survey, certified businesses (9 percent) were more than twice as likely to report employment growth as a result of the Affordable Care Act compared with non-certified businesses (4 percent). Health care changes had a smaller impact on cost increases among Central Coast business owners in 2014, with 70 percent experiencing increased costs compared with 83 percent the previous year.
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