Small-Business Optimism Rises as Access to Credit Improves

 
 
By Nathan Eddy  |  Posted 2013-08-25
 
 
 

While it's well below pre-recession levels, the latest Wells Fargo/Gallup Small-Business Index, conducted at the end of July, reveals small-business optimism is the highest it has been since  the third quarter of 2008, in large part because small-business owners said they feel more optimistic about their ability to access credit over the next year.

In the survey, 28 percent of small-business owners said they expect credit to be very or somewhat easy to obtain in the next 12 months, up from 24 percent in the second quarter of 2013 and the highest percentage since 2009. In addition, 30 percent said they expect credit to be difficult to obtain in the next 12 months, down significantly from the 36 percent recorded last quarter and the lowest this measure has been in five years.

Improved access to credit was a major driver of improvement in small-businesses optimism, helping push overall sentiment 9 points since the second quarter and 36 points since the fourth quarter of 2012, to a positive 25. The survey gauges small-business owners’ perceptions of their present situation over the past 12 months and future expectations for the next 12 months in six key areas: financial situation, cash flow, revenues, capital spending allocation, hiring and credit availability.

In the most recent survey, 25 percent of small-business owners reported an increase in capital spending in the past 12 months. Additionally, more than one-quarter (26 percent) of business owners said they are planning to increase spending in the next 12 months. The No. 1 reason business owners cited for not making a capital investment was continued concern about the overall state of the economy (64 percent) followed by uncertainty in the future of their business (57 percent).

"For 10 years, the Small-Business Index has taken the pulse of small-business owners in America," Doug Case, Wells Fargo small-business segment manager, said in a statement. "The survey has shown a slow and uneven recovery for small businesses, and this quarter we continue to see business owners express cautious optimism as economic trends improve, such as a strengthening housing market."

A majority of small-business owners (57 percent) said they have seen an overall improvement in the housing market in their area. At the same time, 42 percent reported that their business relies either somewhat (22 percent) or a great deal (20 percent) on a strong housing market. Moreover, 45 percent indicated that a rise in housing prices would improve their business’s sales either somewhat (33 percent) or a great deal (12 percent).

The overall Small-Business Index is computed using a formula that scores and sums the answers to 12 questions—six about the present situation and six about the future. An Index score of zero indicates that small-business owners, as a group, are neutral, neither optimistic nor pessimistic, about their companies’ situations.

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