If you’re a small business owner, an entrepreneur, or a lender who serves the small enterprise marketplace with creative small business funding solutions, the years leading up to 2016 have been an emotional roller coaster. Many small business owners have seen a return of sales and revenues to levels not experienced since before the Great Recession of 2008, and start-ups are surging among employees leaving existing jobs or launching side businesses to augment their primary employment.
Meanwhile, lenders, especially those who serve these markets with business loans and merchant cash advances that deliver working capital and business financing, are seeing a surge in new lending inquiries and originations from business owners expanding operations or entrepreneurs launching new enterprises.
Many companies and industries have enjoyed consistent, if not complete, recovery since 2008, while others have experienced a bumpier, even non-existent return to economic normalcy.
Below are eight signs that point to a mix of caution and optimism for small businesses in 2016 and beyond:
Small business drives the economy. The mindset, health, and actions of American small businesses truly drive the U.S. economy. Only one in 10 businesses in the U.S. are publicly traded, reports the Wall Street Journal, and more than 30% of working Americans work at companies with fewer than 100 employees, notes the U.S. Small Business Administration. The number of those companies with 499 or fewer employees is on the rise, according to the S. SBA’s 2015 Small Business Bulletin.
Jobs are growing. In 2014, small businesses added 1.4 million net new jobs, exceeding the hiring by those businesses with 500 or more employees. Firms with fewer than 50 employees contributed the most job growth, or 39% of all net new jobs, according to the S. Bureau of Labor Statistics.
Entrepreneurship and start-up activity are rising. Startups in 2015 reversed a five-year downward trend dating back to 2010, “giving rise to hope for a revival of entrepreneurship,” reported The Kauffman Index: Startup Activity, which tracks new business creation. Reversing a decades-long trend, start-ups are outpacing closures, the SBA noted. About 80% of new entrepreneurs were previously employed, compared to roughly 20% who had been unemployed. New entrepreneurs aged 55 to 64 have grown from almost 15% to almost 26% over the same period, Kauffman reported. This appears to reflect confidence and willingness among gainfully employed individuals to “make the leap” and start their own business.
Optimism is up. Small business owners’ optimism is up over the previous 12 months, according to February’s Wells Fargo/Gallup Small Business Index of 600 businesses with up to $20 million in annual revenues. The overall score of 67 was up 13 points from November 2015; the three previous quarters had revealed a decline (the highest Index reading ever was +114 in the fourth quarter of 2006; the lowest was -28 in the third quarter of 2010).
Traditional lenders remain tight. Inflexibility and constraints placed by financial institutions often limit business owners’ ability to borrow, leaving them unable to secure even half of the funding requested. This has become “a central issue for financial institutions… and other mission-driven lenders, which may offer more flexible rates and terms than conventional lenders,” notes The State of Small Business in America, a study of 1,800 small business owners from Babson College commissioned by Goldman Sachs “10,000 Small Businesses” and conducted in March 2016.
Loan activity is bullish. For example, we’re seeing applications by and originations to older, more established companies for alternative business loans are outpacing those from younger business enterprises. Moreover, between Q4 2015 and Q2 2016, BFS Capital saw significant spikes in submissions from three industries: full service restaurants (up 66%), electrical contracting (51%), and general automotive repair (42%). These trends combined may reveal that borrowers have accepted “alternative” financing as an acceptable means of funding.
As Washington goes, so goes the economy? Any discussion of optimism, pessimism, and the economy’s future relies heavily the nation’s capital. Many argue that government’s greatest effect on U.S. businesses stems from its regulatory agencies. Babson found that six in 10 of its survey respondents reported “some level of difficulty understanding and managing government regulations and laws.” Recent action out of Washington regarding sick and parental leave, regulatory changes from the U.S. Department of Labor regarding overtime, and minimum-wage requirements, for example, have employers – especially small businesses – considering the impact.
The November elections. As the summer turns to fall and the November elections approach, further uncertainty is certain. From technology, business funding, and workforce issues, to new business development and governmental regulations, businesses have an eye on the presidential election as they navigate waters both familiar and uncharted.
To be sure, many sectors of the U.S. economy have enjoyed a robust recovery in the years following the Great Recession. Yet, the fiscal, managerial, and regulatory challenges have created an emotional roller coaster ride for business owners and their employees. This likely will contribute to and even compound continued uncertainty in the marketplace – building to a crescendo as the November elections approach and determining whether the country finishes 2016 strong and moves confidently into 2017 – and beyond.
Click here to access the full study, “Small Business Landscape 2016: Cause for Cautious Optimism”.