Demand for Private Funding Suggests an Improved Business Climate
LOS ANGELES, Sept. 1, 2015 /Business Wire/ — Small businesses in the U.S. are continuing to demonstrate optimism about the future, according to results of the latest Dun & Bradstreet (NYSE: DNB) and Pepperdine Private Capital Access (PCA) Index.
The Q3 2015 PCA survey showed that for both businesses with annual revenues under $5 million and those between $5-100 million, private capital access increased by 2.8%, compared to three months ago, with demand increasing 0.7%.
For Q3 2015, 49% of respondents revealed their main purpose for raising financing was for growth or expansion, up from 42% in Q3 2014. The PCA study also revealed that a greater percentage of respondents indicated demand for new financing in the next six months, a reflection of continuing optimism about the economy among business owners. Sixty-two percent (62%) of respondents planned future growth or expansion in Q3 2015, a 12% increase since Q3 2014, while 56% expect growth due to increased demand in Q3 2015, compared to 43% in Q3 2014.
“Many of these signs are very positive, pointing to an improved business climate and resulting in an increased demand for private funding. And if we look at these results solely, there’s every reason to be bullish on the U.S. economy,” said Craig R. Everett, PhD, director, Pepperdine Private Capital Markets Project. “But with new research indicating that consumer confidence plunged this summer to its lowest level since September 2014, and the upheaval in global economies, we remain cautious about the possibility of future volatility and its impact on small and mid-sized businesses.”
Small businesses turning to alternate financing
The study also found that businesses are increasingly turning to financial sources other than banks. An increasing percentage of small businesses also said they attempted to raise financing via personal and business credit cards: 45% of respondents sought to raise funds through personal credit cards in Q3 2015 (compared to 34% in Q3 2014); and 55% attempted to raise financing through a business credit card in Q3 2015 (versus 40% in Q3 2014).
Thirty-four percent (34%) of respondents said they transferred personal assets to their businesses over the last three months, and 40% of respondents have financing coming from outside sources. When asked to identify likely sources of future funding, 31% of small businesses said friends and family in Q3 2015 (versus 23% in Q3 2014); and 28% of small businesses said personal credit cards in Q3 2015 (versus 37% in Q3 2014).
“The nexus between credit and growth is critical for small businesses to succeed. This recent analysis shows small businesses are resilient and continue to prove they have the resourcefulness to secure funding,” said Jeff Stibel, Vice Chairman of Dun & Bradstreet. “As small businesses show momentum in profitability and growth, lending should accelerate.”
Surprisingly, bank lending slid to 63% in Q3 2015 vs. 66% in Q3 2014. Of the 49.6% of private businesses who sought financing through a bank loan in the last three months, about 37% were successful. About one third (25.9%) of those who attempted to get financing applied for an asset-based loan; only 22% of them were successful.
Small businesses the least successful at securing financing
Businesses with annual revenues of less than $5 million continue to be less successful in securing a bank loan. Thirty percent (30.1%) of businesses with less than $5 million in revenue were successful securing a bank loan in Q3, 2015, compared to a 46.1% success rate in securing a bank loan in Q3 2014.
Very small businesses fared even worse. Businesses with annual revenues under $500,000 reported success rates of only 20% with bank loans and 16% with asset-based lenders.
While optimism grows, concerns about the regulatory environment remain high
Fifty-seven percent (57%) of respondents report the current business environment is restricting their growth opportunities for business and 48% of respondents report the current business environment is restricting their ability to hire new employees.
The results are part of the Pepperdine Private Capital Access (PCA) Q3 2015 Index report, a private capital markets data survey produced quarterly by Pepperdine University Graziadio School of Business and Management in partnership with Dun & Bradstreet. The purpose of the PCA Index is to gauge the demand of small and medium-sized businesses for financing needs, the level of accessibility of private capital, and the transparency and efficiency of private financing markets.
The Q3 2015 Index report is derived from 2,893 completed responses collected from June 29 – July 17, 2015, and contrasted with survey results collected from Q2 2015. Download the latest index data at Pepperdine Access to Capital and follow us on Twitter at @GraziadioSchool and @DnBUS.
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A leader in cultivating entrepreneurship and digital innovation, the Graziadio School of Business and Management at Pepperdine University focuses on the real-world application of MBA-level business concepts. The Graziadio School provides student-focused, globally oriented education through part-time, full-time, and Executive MBA programs at our six California campuses, as well as through online and hybrid formats. In addition, the Graziadio School offers a variety of Master of Science programs, a Bachelor of Science in Management degree completion program, Presidential and Key Executives MBA and executive education certificate programs. Connect with the Graziadio School by following the links: Facebook, Twitter and LinkedIn.
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