Small Business Confidence Unexpectedly Plummets

The U.S. has one of the world’s most robust alternative lending markets, while mainstream banks have hit their highest levels of small business lending in years. So why has the level of confidence among SME owners just done a nosedive?

The latest National Federation of Independent Business Small Business Optimism Index was released this week, and the findings are dark. Researchers found optimism levels fell to 94.1 in June, down from 98.3 the month prior. The drop follows previous expert predictions that the index would not change much between May and June.

There are 10 subindexes used to calculate the score, but according to reports, none of them rose — nine fell, while one remained unchanged. The earnings trend subindex fell by 10 percentage points to -17 percent in June, reports said, while business conditions expectations fell by six points to -9 percent. The subindex addressing plans to increase inventories fell by eight points to -4 percent. Researchers also found that small businesses reporting higher-than-normal sales in the last quarter similarly dropped by nine percentage points.

These sentiments led to additional falls in subindexes related to plans to hire more staff and boost capital spending. Hiring plans remained essentially unchanged, the NFIB found.

Altogether, the index paints a pessimistic view of small businesses in the U.S., though researchers did not elaborate on possible explanations for these responses. The findings seem to contradict recent reports that were thought to give small businesses reason to celebrate.

For example, recent findings from the Biz2Credit Small Business Lending Index found that traditional bank lending to SMEs was at its highest level last May since the recession. The report also concluded that economic recovery placed small businesses in a better financial position.

“With the relatively strong economy, businesses are no longer forced to borrow at any cost,” said Biz2Credit CEO Rohit Arora at the time.

The different conclusions between the two studies imply a significant change in small business sentiment between May and June of this year.

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