Small business confidence builds as asset lenders wait in the wings

Small business owners in both the US and UK are the most optimistic they have been in several years, according to recent reports in both countries.

In the US the latest Wells Fargo/Gallup Small Business Index and in the UK the Federation of Small Businesses both expect their businesses to increase cash flow and hire more employees in 2014.

The findings should inevitably lead to greater opportunities for asset lenders in both countries.

In the US small business survey conducted Jan. 6-10, 2014 the overall score increased to a positive 45 (+45) in January, up from a positive 24 (+24) in October 2013. While this score is the highest it has been since the third quarter of 2008, it is still well below pre-recession levels.

The compilers suggest that several factors contributed to this quarter’s increase in small business optimism compared to that of Q4 2013:

• improved cash flow: In the January survey, more small business owners said they had good cash flow over the past 12 months than they did last quarter (52% compared to 46%). A larger majority of business owners also expect to have good cash flow in 2014 (57% compared to 52%);

• increasing hiring: More small business owners said they expect to increase hiring in the next 12 months than in last quarter’s survey (22% compared to 16%);

• increasing revenue: A larger percentage of small business owners expect their revenue over the next 12 months to increase (48% compared to 44%);

• accessing credit: Fewer small business owners in the current survey reported having difficulty obtaining credit than did so last quarter (23% compared to 27%).

“There are many reasons for small business owners to view 2014 as a promising year,” said Lisa Stevens, Wells Fargo lead executive for Small Business. “There’s less uncertainty in the economy than there has been for quite some time. Congress approved a federal budget deal at the end of last year. The stock market performed well in 2013, and capital spending has picked up. With each piece of good news, business owners gain a little more confidence to grow and expand. We know that small business owners still face many challenges, yet hope this momentum continues as the economy improves further.” 

The UK’s small firms are also showing increasing optimism for 2014 as businesses remain positive about the economic outlook. Latest research suggests small firms want to grow their business and find access to finance a little easier, according to the Federation of Small Businesses’ (FSB) Small Business Index.

For the fourth consecutive quarter, the Small Business Index measure of confidence among small UK firms has grown year-on-year, up 27.2 points from -5.6 in Q4 2012 to +21.6 in Q4 2013. Encouragingly, this optimism is also replicated in every region of the UK and in each business sector.

This increased confidence means more small firms are planning to invest in and explore the global trade market. New data shows businesses expect to see rapid or moderate expansion in the next 12 months. Alongside this, one in 10 businesses report running above capacity while a third are running at full capacity – both the highest figures since the Small Business Index began in 2010. 

New staff for expansion plans

Feeding into expansion plans, capital investment intentions continue to rise with almost a quarter (23.1%) expecting to invest in the next year. UK businesses also want to take on more staff – perhaps ahead of the Employment Allowance which comes into force in April 2014. And, with Federation of Small Business members polled prior to the Autumn Statement, where a further incentive to take on young people was provided, more could be set to invest in new staff. 

John Allan, national chairman, Federation of Small Businesses, said: “Encouragingly, the number of firms refused their credit application is the joint lowest share since the start of 2012. While only 16% of respondents had applied for credit in the quarter, reported rises in turnover and profitability, as well as stronger growth aspirations, means businesses could be paying for investment out of existing sources of capital.

“Those businesses accepted for finance continue to report cheaper interest rates being charged, a direct result of Funding for Lending (FLS). The FSB hopes the re-allocation of FLS funds to small business lending will mean the banks make finance available to more small firms.” 

He added: “Confidence has been in positive territory for a full year, giving economic growth solid foundations moving into 2014. Small firms are creating more jobs and investing in their business and there are encouraging results behind the headline figures, with promising trends evident across the main areas of expansion, investment and employment. 

“Government must not be complacent – helpful initiatives were announced in the Autumn Statement, particularly on business rates. This, alongside the refocusing of Funding for Lending should continue to keep small firms in the spotlight. However a sustained recovery is perhaps some way off as the worldwide economy remains uncertain.”