The State of Small Business: Good, But Not Great

Things are looking up for America’s small businesses. For the first time since 2007, the number of small businesses opened topped the number of shuttered businesses. Nearly half of small businesses saw sales increase over the past six months. While they haven’t forgotten the struggles following the financial crisis, business owners are optimistic (cautiously) about the future.

This optimism isn’t something to ignore. U.S. small businesses employ 56.1 million of the nation’s private sector workers, 5 million more than the enterprise sector. If the definition of small business is expanded to include businesses with 250 or fewer workers, small business makes up 99 percent of payroll, according to the U.S. Census Bureau.

Last week, National Small Business Week came and went, and Business.com released its State of Small Business report to commemorate the event. Founded in 1963, National Small Business Week highlights the contributions of the nation’s small business owners and entrepreneurs. Pulling together the findings from eight small business surveys, the report reveals the highs and lows facing small businesses today.

Finance & Funding

Small businesses are earning more and spending more—carefully. Sales increased at 40 percent of business over the past six months; a slight 2 percent improvement over last year, according to the March 2015 Capital One Spark Barometer. While many businesses are earning more, spending has not ramped up to meet the increase. Owners are setting aside some of today’s profits for the future, the recent downturn still fresh in their minds. The top areas for budget set asides include, new technology (57 percent), emergencies (55 percent) and employee compensation (46 percent).

Borrowing conditions have also improved. The State of Small Business report shows small business borrowing reached about $1 trillion in 2013. Business loans accounted for $585 billion; finance companies contributed $422 billion in credit and the balance made up of a mix of sources. Commercial loans are still the most popular, more than a quarter of small businesses applied for a business loan last year; 90 percent were approved. While lending has relaxed, some owners are avoiding commercial loans altogether. Personal funding sources are almost on par with commercial loans, according to Business.com. Forty-six percent of small business owners skipped the bank, a 39 percent increase from two years ago. Millennials are the most likely to use personal savings or to fund their business endeavors.

Alternative lenders may be losing ground to traditional banks, but many small businesses are taking advantage of non-bank funds. Millennials lead the way. Younger small business owners are nearly five times as likely as Gen-Xers to have received past funding from a peer-to-peer network. Alternative financing is also popular with minority and female business owners. The report notes forthcoming changes to the JOBS Act, which opens investing to average citizens, with limits, will impact the landscape going forward. Scheduled to go into effect June 19, the new rules known as Regulation A+, mark a fundamental shift in capital raising, but the outcome is still unknown.

Hiring & Health Care

The Great Recession may be in the rearview mirror for most of America’s small businesses, but hiring levels still haven’t recovered. That majority of owners have not hired in the past 12 months. Plans to hire also remain flat. The Top 3 reasons for the lag in hiring are as follows: lack of business growth, not having the funds to hire and owners taking on more responsibility themselves.

Health care costs continue to weigh heavily on the minds of small business owners. The majority feel more informed about the Affordable Care Act than in 2013, but they are still concerned about the how much it will cost. Any business with more than 50 employees will be required to provide health care soon, and owners must budget for the unavoidable impact.

The state of small business in 2015 could best be described as “cautiously optimistic.” Sales are growing and financing is easier to come by, but hiring is still slow. Regardless of the size or sector, change is coming. “The data clearly shows there is a disruption occurring in our economy which is of interest to all business people,” Betsy Scuteri, Editor In Chief of Business.com said of the report’s findings.

Technology will play a large role in that change. Finding ways to utilize and harness data is essential. Data can help businesses decide how money is spent (or saved), which hires are made and how marketing is best utilized.