Small Business Confidence Declines Despite Increased Access to Capital and Greater Profitability
Friday, July 20, 2018
Small businesses (those with less than $5 million in revenue) reported increased ability to secure capital, with success rates increasing across all categories in the second quarter of 2018. Businesses also saw their profitability grow, according to the Q2 2018 Private Capital Access Index from Pepperdine Graziadio Business School and Dun & Bradstreet. However, these increases did not result in heightened confidence about future growth or improved business performance.
Fifty-two percent of small businesses were successful in securing a bank loan in Q2 a 27 percent increase over Q1 when 43 percent were successful. Loans from credit unions/community development financial Institutions (CDFIs) were up 18.5% (from 27 percent in Q1 to 32 percent in Q2), and investments from venture capital and private equity were up 58 percent and 150 percent respectively (venture capital rose from 12 percent in Q1 to 19 percent in Q2 and private equity rose from 10 percent in Q1 to 25 percent in Q2).
Business profitability saw similar increases in Q2, with 61 percent of businesses operating profitably, an increase of 9 percent year over year, and 5 percent quarter over quarter (57 percent of businesses were profitable in Q2 2017, and 59 percent were profitable in Q1 2018).
Although profitability and borrowing success rates are up, this has not led to increased expectations for business performance or growth. Only 27 percent of businesses expect to perform substantially better than last year, a 23 percent drop from 35 percent in Q1 2018, and a 25 percent year over year drop from 36 percent in Q2 2017. Similarly, only 42 percent of businesses are confident that they will grow this year, down from 47 percent in Q1 2018 and down 12.5 percent from 48 percent in Q2 2017.
The number of businesses planning to raise financing in the next six months was also down significantly, falling to a two-year low. Only 29 percent of businesses expect to raise financing in the second half of this year, down from 34 percent in Q1 2018, and 36 percent in Q2 2017.
“Although this period is marked by high access to credit and financing, as well as increased profitability, businesses are being cautious about growth expectations,” said Bodhi Ganguli, lead economist at Dun & Bradstreet. “Midterm elections in the U.S. and global uncertainly around trade agreements and tariffs are likely leading businesses to rein in expectations and investment, despite favorable trends.”
Download the latest index data here.