SMEs Feeling Better About Cash Flow, Credit Access

Entrepreneurs are feeling more confident about their ability to access working capital, according to recent findings.

In a study conducted by Bank of America and CFI Group released Tuesday (Feb. 24), researchers found that overall, small business owners are significantly more optimistic about the state of the economy and their operations than they were in the six months prior. That optimism, the research shows, extends into businesses’ ability to access lines of credit.

Regarding the state of the financial environment, study organizers asked businesses to rank their opinion on its health based on three factors: cash flow, access to credit, and current interest rates. Together, respondents’ rankings averaged a score of 47 (between 0 and 100, with 100 representing the most positive factor.

According to the report, “the January score for Financial Environment of 57 indicates that on average the respondents give this factor a somewhat middle rating, indicating neither extreme pleasure nor displeasure with this aspect of this experience running a small business.”

While the score of 57 may not seem particularly positive, the survey reports that compared with results from the last survey, conducted in August of 2014, small businesses reported an increase of 6 percent in satisfaction with their financial environment.

Rankings were higher within all three sub-categories: the average ranking of current cash flow rose from 52 to 54, ranking of access to credit rose from 60 to 64, and ranking of current interest rates rose from 53 to 55. These numbers represent an improved outlook on access to credit by 7 percent, and an improved outlook on cash flow by 4 percent compared with August 2014 findings.

According to Bank of America and CFI Group, these results indicate not only a positive reaction to reports of growth among small businesses seen in the press, but also a reflection of business owners’ individual experiences.

Regarding concern of supply chain risks overseas, the study did not find a significant change in option between the August 2014 survey and the January 2015 survey. The findings show a relatively low concern for risk of companies’ oversees supply chain, ranking the concern at 33 in January 2015 (down from 37 in August 2014), based on a score of 0 to 100, with 100 indicating the highest perception of risk.

Improvement, But Room For More

While the survey indicates improvement within SMEs’ cash flow management and access to credit over just a few months, the report highlights that these numbers remain in the middle ground of small business owner sentiment. “Though our study lacks specific baseline data from healthier economic times against which to benchmark respondents’ ratings of each of these three key factors in the Small Business Sentiment model, their scores remain low enough to imply that much room for improvement remains,” the study concludes.

Gender Gaps

What is also significant within the reports’ findings is the generational gaps that exist between respondents’ rankings of their financial environment. According to the study, millennials (small business owners aged 18-34) and business owners over the age of 69 both ranked their current environment with a score of 60. Boomers, owners aged between 50 and 68, ranked theirs lower with a score of 57, and members of Generation X, between the ages of 35 and 49, gave the lowest score to this portion of the survey at 55.

Bank of America and CFI, however, point out that these findings cannot be read into too much. “As a snapshot of these age groups at a point in time, our findings cannot offer much insight into the degree to which there is something distinctive about the Millennials’ apparent optimism that will persist over time, rather than reflecting life-cycle effects that may shift as their careers progress,” the study concludes.

Still, the research added that these differences between generations cannot be ignored, either. “In the near term, however, the differences among the age groups in our study do suggest opportunities for financial services providers to craft differentiated strategies for interacting with customers of different generations that align with their varying views of the state of small businesses.”

This suggestion could have big implications for how financial institutions and alternative lenders gain traction within each generation, and through what medium.

Overall Optimism

In addition to a more optimistic view on their financial environments, small businesses reported a widespread increase in optimism altogether. As noted above, our respondents’ optimism about the economy and financial environment for small businesses, along with their decreasing levels of anxiety about potential risks, have shifted dramatically in a positive direction in a relatively short period of time, and are beginning to improve their expectations for growth,” the study concludes.

In a statement, Bank of America small business executive Robb Hilson revealed the study’s support for a positive 2015 among the SME community. “Entrepreneurs are feeling the effects of an improving economy and they believe 2015 will be a strong year for small businesses,” Hilson said.​