Small Businesses Optimistic Despite Concerns about Economy

Although the Wells Fargo Small Business Index fell seven points in the second quarter, most businesses say they’re doing well financially, according to the firm. Similarly, April’s Small Business Optimism Survey by the National Federation of Independent Business (NFIB) reflects a rise in optimism.

With a 13-point gain during the first quarter, the Wells Fargo index remains at a relatively high level, but it reveals that concerns about the overall economy have grown. And although nine out of 10 components in NFIB’s survey increased month-over-month, it remains below its historical average. As the survey moved up 1.7 points to 96.9, real sales expectations was the lone wolf with a 3-point decline. It has fallen to a net 10% of owners expecting gains, which continues the trend of the 5-point decline in January and February and a 2-point decline in March.

“Optimism may have seen a slight jump from last month’s weak numbers, but there was not an especially large gain in any area except for an improvement in profit trends,” said Bill Dunkelberg, NFIB chief economist. “Overall, the index remains steady, but it is still a few points below the average and is showing no tendency to break out into a stronger pattern of economic growth. Solid economic growth would require good performance from both big and small firms and that will likely be elusive this year.”

According to Wells Fargo’s index, business owners reported less difficulty obtaining credit and an increasing demand for it. Those that expect credit conditions to ease further rose two points to 38%, and those that anticipated applying for new credit held at 18%, still well ahead of the level a year ago. A combination of leaner operations and opportunities to lower interest rates led to more business owners reporting cash flow improvement over the past year, Wells Fargo said. “The proportion of firms rating their cash flow as very good or somewhat good rose four percentage points in the second quarter to 58%, which is the highest reading in seven years. The proportion rating cash flow as somewhat poor or very poor fell one point to 20%, which is the lowest this series has been since the fourth quarter of 2007.”

In NFIB’s survey, 4% of owners reported their borrowing needs were not met, down one point and historically low. However, 31% were satisfied, and 53% reported not requiring a loan. “Only 2% reported that financing was their top business problem (down one point) compared with 22% citing taxes, 23% citing regulations and red tape and 11% citing weak sales,” NFIB said. Owners who borrow on a regular basis fell two points to 31%, and the average rate paid on short maturity loans fell 70 basis points to 5%.

“Loan demand remained historically weak,” the organization said. “The net percent of owners expecting credit conditions to ease in the coming months was a negative 4%, a two-point improvement. Interest rates are low, but prospects for putting borrowed money profitably to work have not improved enough to induce owners to step up their borrowing and spending.”

- Diana Mota, NACM associate editor

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