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UNION BANK’S ANNUAL SMALL BUSINESS ECONOMIC SURVEY SHOWS SMALL BUSINESS OWNERS OPTIMISTIC ON HIRING, PROFITS AND CAPITAL SPENDING
For Immediate Release
Small Business Jobs Act motivated just six percent of owners to apply for a loan;
96 percent of business owners surveyed do not expect layoffs in 2011
SAN FRANCISCO, March 16, 2011 - After experiencing increased sales and fewer layoffs in 2010, more California small business owners report an improved outlook on profits, hiring and capital expenditures in 2011. However, business owners are balancing their increased optimism with conservative measures to protect their business, according to Union Bank’s 11th Annual Small Business Economic Survey released today.
The survey - the largest to date with nearly 3,000 participants statewide - found that a full 60 percent of small business owners believe 2011 will be a better year in terms of profitability, a nine percent increase from last year and a 26 percent increase from 2009. This is the most optimistic owners have been since 2007, when 67 percent of owners statewide anticipated improved profitability.
"After years of belt-tightening, careful spending and trying to hold the line on staffing levels, small business owners are growing weary of just 'hanging on,' and they’re ready to return to profitability," said Executive Vice President Todd Hollander, head of Union Bank’s Business Banking group. "The profitability point is the most positive development from our survey, and it proves again why small businesses are truly the backbone of the U.S. economy – and the specific insight and feedback we’ve gained from this comprehensive survey has national implications as California small business owners are a catalyst for the nation’s economic recovery."
The improving profit expectations follow a year of increased sales for business owners, with 42 percent of respondents reporting greater sales in 2010 compared with 2009, up 14 percent from last year’s survey. The survey data also show that fewer owners (17 percent) incurred layoffs in 2010 than 2009 (24 percent) and 96 percent of owners do not anticipate layoffs in 2011.
Planned increases in hiring and capital spending add to the optimism. Twenty-four percent of owners expect to increase staffing levels this year, up three percent from last year and up nine percent from 2009—when anticipation for job growth was at its lowest level (15 percent) in the survey’s history. Twenty-seven percent of owners plan to increase their capital expenditures this year, up six percent from last year and up 10 percent from 2009. Still, most owners show restrained optimism with 70 percent expecting to maintain the same staffing levels, 63 percent expecting to keep capital expenditures similar to last year, and 40 percent anticipating continued vendor negotiations for lower costs.
"After weathering substantial challenges during the economic downturn of the last few years, it’s understandable that while small business owners are increasingly hopeful, most remain conservative in their planned expenditures," said Hollander. "The good news is that optimism continues to edge up in terms of profitability, hiring and capital expenditures. Many small business owners are waiting to see what 2011 brings before concentrating on growth."
While the majority of business owners (57 percent) believe that their business or industry will have experienced a recovery by the end of 2011, one in four business owners believe they have already experienced an economic recovery, an eight percent increase from last year. Forty-three percent anticipate a recovery in 2012 and beyond.
With 54 percent of owners cutting their operating costs last year, 41 percent reducing their debt and 46 percent negotiating with vendors for lower costs, business owners are seeking government assistance in the same areas as the previous year. Sixty-one percent of owners would like to see the government focus more on tax cuts for small businesses, 37 percent favor temporary tax incentives to encourage small businesses to invest in jobs and 33 percent would like lower health care costs to ease the burden for small businesses.
Despite the passage of the Small Business Jobs Act of 2010—legislation providing small banks with $30 billion to encourage lending to small businesses, $12 billion in tax incentives, and expanded Small Business Administration (SBA) loan programs—only six percent of owners were strongly motivated to apply for these loans or credit.
"For many small business owners who have struggled with debt over the past few years or who think that banks aren’t lending, it will take some time to return to a mindset of applying for loans," said Senior Vice President Heather Endresen, manager of Union Bank’s SBA government lending. "At Union Bank, we have credit available for qualified candidates, continuing our nearly 150-year legacy of lending to small businesses. We’re proud to be one of the most active small business lenders in the western U.S."
According to the survey results, the Jobs Act also had little impact on owners’ plans for hiring. Eighty-nine percent of owners planning to add staff this year said their planned increases have nothing to do with the legislation. Only four percent said their hiring plans are directly attributed to the legislation. Most small business owners, while remaining somewhat cautious, are tenacious and want to return to hiring and growing their businesses, according to Aida Alvarez, the former head of the Small Business Administration during the Clinton Administration and a member of UnionBanCal Corporation’s board of directors.
Since 2008, California small business owners have continued to identify the state’s economy as the top challenge in running a business in California. Forty-four percent of owners list this factor as their primary concern, down 16 percent from last year. This reflects another part of the survey which found that the majority of business owners (55 percent) feel that the state’s budget crisis had a moderate or significant impact on their business.
For the second consecutive year, state and local business taxes remain the second biggest challenge for California business owners. This is the primary concern for 37 percent of owners. State and local business regulations are the third biggest challenge as the primary challenge for 29 percent of owners.
This is the first year since 2004 that workers’ compensation costs did not rank among the top three challenges. Concern about workers’ compensation costs dropped from 29 percent last year to 27 percent this year, ranking it as the fifth biggest challenge to doing business statewide. The majority of business owners (69 percent) reported no change in their 2010 workers’ compensation insurance premium from the previous year. As in last year’s survey, 26 percent of owners reported an increase in their premium. On average, their premium increased 13 percent.
Other Survey Highlights
- 23 percent of business owners applied for a business loan or access to credit in 2010. Of these business owners, 37 percent were denied a loan or access to credit. Of those denied, 74 percent were unable to find alternate financing.
- 43 percent do not have a business line of credit, up eight percent from last year.
- 44 percent reported no change in their pricing of products or services in 2010. Twenty-five percent raised some prices and lowered others in 2010.
- 41 percent offer health care coverage to their employees, down four percent from the previous year. Apart from a slight rise in 2009, the number of business owners offering health care coverage has slowly declined since 2003 .
- 10 percent said social networking Web sites significantly changed their communication with customers or the way they promoted their business.
- 10 percent plan to make changes in their ownership structure. Of these, 21 percent plan to take on a partner and another 21 percent plan on transferring all or part of the ownership.
- 48 percent offer paid vacation benefits, down 14 percent since 2008.
- 42 percent are communicating more with employees and 30 percent are offering more flex time and part-time schedules to keep employees motivated during these tough financial times.