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4 Mar, 2016

Union Bank Survey: Small Business Owners Less Optimistic about U.S. Business Climate in 2016

New York, USA, 25 February 2016, (BUSINESS WIRE) –Union Bank today announced the results of its annual Small Business Economic Survey, which shows small business owners are more pessimistic about the national economy in 2016 than last year, yet remain hopeful about the future of their own businesses. The survey also found 39 percent of female respondents feeling more positive about the business climate versus their male counterparts (31 percent).

Union Bank, working with its survey partner, surveyed nearly 700 respondents in California and the Pacific Northwest during January 2016. Overall, a majority of small business owners (58 percent) report that the national economy is headed in the wrong direction, an 18 percentage point increase over 2015. More than half also believe state and local economies have worsened, another double-digit increase. However, when asked about their own businesses, nearly 90 percent said they believe they are headed in the right direction.

During the 2012 election year, the Union Bank Small Business Economic Survey results reflected similar uncertainty with the national economy, while small business owners showed strong confidence in their own companies.

Business owners are generally more negative about the business climate for small businesses in 2016: 37 percent said the business climate has worsened, 35 percent said it has improved (an 11 point decline) and 29 percent said it has stayed the same, the 2016 survey showed. Family-owned businesses were more likely than non-family owned businesses to believe the climate has worsened (40 versus 31 percent) .

Fifty percent of business owners reported that they are either unprepared or admittedly do not know if they are prepared enough for interest rate changes. A plurality of small business owners said they are working the same number of hours in early 2016 as they did during the same time last year. Forty-nine percent said they were working the same number of hours per week, 38 percent said they were working “somewhat or a lot more” and 14 percent said they were working “somewhat or a lot less,” the data showed.

“The feelings of uncertainty about the national economy reflected in the survey results are somewhat consistent with what we’re seeing among small business owners who are encouraged about the future of their businesses and cautiously expanding and increasing staffing,” said Union Bank Managing Director Todd Hollander, head of Business Banking. “Our clients are working smarter to sustain their businesses and many continue to seek capital, but they are closely monitoring interest rates and are concerned about interest rate changes and other government implications during this election year.”

Access to Credit, Spending

The survey showed a slight uptick in the percentage of business owners who applied and were approved for loans.

In 2015, 15 percent of business owners applied for loans or access to credit, and loan approval rates increased slightly to 79 percent, an increase of two percentage points on both measures. Minority business owners were nearly twice as likely to apply for credit, at 28 percent and experienced a higher than average approval rate according to the survey.

Overall, small business owners are spending more conservatively in 2016: two-thirds said they will keep capital expenditures the same, a six percentage point increase over last year. Seventeen percent said they would increase spending and another 17 percent said they intend to decrease spending.

Minority business owners were also more likely to report they will increase capital spending (27 percent). Younger business owners are also more likely to increase spending − nearly one-quarter of business owners under age 55 plan to increase capital expenditures, as compared to 12 percent of business owners aged 55 and above.

“Access to credit and alternative financing remain top priorities for entrepreneurs,” said Kirsten (Didi) Hakes, head of the SBA Lending group at Union Bank. “The survey results reflect that more minority business owners are experiencing higher than average approval rates, and that is encouraging and consistent with the interest we continue to receive in the bank’s lending programs, such as Business Diversity Lending and Community-Based Financing, which help provide loan opportunities to women-, minority- and veteran-owned businesses.”

Top Election Year Issues

Small business owners named the Affordable Care Act the election issue of most concern for their businesses, although a majority said the health care law has not negatively affected their bottom line.

Forty-two percent of small business owners said the Affordable Care Act would most impact their business, followed by immigration laws (24 percent); equal pay (22 percent); and foreign trade (16 percent). When asked about the impact of the health care changes, 52 percent said they had either no financial impact or had reduced costs, however, 48 percent said the health care changes either somewhat or greatly increased costs. Eight in 10 business owners said the Affordable Care Act had not impacted employment at their companies.

A large majority of business owners are not making efforts to support policies advancing equal pay or targeting employees across generations, the Union Bank Small Business Economic Survey also showed.

More than half (57 percent) said they had made “no conscious effort” to support equal pay policies in their businesses. Twenty-three percent of business owners had a clearly defined pay structure; 15 percent conducted periodic wage assessments; and 10 percent made efforts to increase transparency.

Even larger percentages of small business owners said they had not made efforts to attract and retain employees across generations, from Millennials to Baby Boomers. More than three in four business owners said they made “no conscious effort” to attract or retain Millennial workers, and 72 percent made no efforts to retain their Gen X or Baby Boomers employees, according to the survey*.

More than half, 51 percent, said they are “not at all concerned” about the wave of Baby Boomers reaching retirement and the subsequent impact on their staffing.

“These results showing little concern surrounding generational staffing are not completely aligned with what our clients are telling us,” said Hollander. “Many clients are focused on attracting, training and maintaining talented Millennials while maximizing experienced, proven employees who have decades of experience to help streamline staff transitions of retiring workers. The skills gap also remains a growing issue in a variety of industries.”

The survey showed that the historic California drought seems to have primarily impacted local California business, especially those in the Central Valley and Central Coast. Twenty-nine percent of businesses with 20 or more employees report that the drought has had an impact. However, overall, more than 90 percent of business owners said the drought has not impacted their business.

Planning the Future: Ownership Structure

The proportion of business owners planning changes to ownership structure remains consistent with 2015 levels. Among those planning to make a change, selling the business emerges as the top option in 2016 (23 percent), with taking on a partner a close second (22 percent). Within five years, 35 percent said they planned to make a change in their business ownership.

“This is consistent with many of our Baby Boomer clients who are beginning to explore next steps, which may mean selling their business,” Hakes said. “If selling is in the cards, they will need to be as proactive as they have been in running their business. We recommend putting in place an exit strategy two to five years ahead of the event. It is also important to understand that running a business and selling a business take different skills.”

About the Survey

Union Bank, working with its survey partner, surveyed 654 respondents (553 in California and 101 in the Pacific Northwest) online from Jan. 11 – 26, 2016. The small business respondents were screened to ensure that they have been in operation for a minimum of two years with owners over the age of 25. The small businesses were defined for the survey as having $15 million or less in annual sales. The margin of error for the full sample is +/-4 percentage points 95 percent of the time. For the various regions, the margins of error are as follows: Southern California (+/-4%) 95 percent of the time; Northern California (+/-7%) 95 percent of the time; Pacific Northwest (+/-10%) 95 percent of the time.