The Holidays May Be Bright, But Your Outlook Is Likely Dimming

November 19, 2014  | 2 min read

At least small businesses plan to hire more for the holiday selling season this year. 

That's the bright side of Pepperdine University's Capital Access Index study for the third quarter. It turns out about 8 percent of businesses plan to add more employees for the upcoming holiday season--including full-time, contract, part-time and temporary employees. That's double the percentage for the 2013 holiday season.

Beyond that, however, the study showed a reduced demand for--and access to--capital, both of which suggest that smaller businesses are not readying themselves for any dramatic growth spurts in the months ahead.

In that regard, the Pepperdine study mirrors what a lot of other small business studiesseem to be saying lately. Namely, fears of a global recession, which could hamper sales abroad, as well as tentative consumers at home, are putting the kibosh on entrepreneurs' optimism about the future.  

The study's index, which uses a numerical point scale to gauge entrepreneurs' demand and access to capital, showed a decrease of nearly 2 points to 29.2 for capital demand. And although the index generally points to increasing access to financing over the past year, there's been a steady decline for demand over the same 12 months. The current quarter's reading of 29.2 for capital demand is a full 7.3 points lower compared to the third quarter of 2012.

The index showed a much smaller decrease of one tenth of a point when it comes to small business access to credit in the quarter, compared to a 0.6 point increase in the second quarter. Although the downtick in the quarter bears some watching, the findings basically align with a number of small business surveys showing the capital supply lines steadily opening for smaller businesses.

(In fact, of those business owners who applied for traditional financing from a bank, more than half were approved for their loans, nearly twice the rate of those approved for alternative financing, according to Pepperdine.)

Diving a bit more into the numbers, it turns out nearly half of respondents sought financing to grow or expand operations. About an equal number sought financing to smooth out fluctuations in working capital, and 40 percent wanted capital to meet demand they'd already booked. Slightly more than a third sought financing to meet future demand or growth. All of these readings are down slightly from the previous quarter.

It's important not to make too much of results from one quarter. But clearly, businesses are growing more concerned about their growth prospects.

Pepperdine, which works with Dun & Bradstreet Credibility Corporation to compile the report, polled 2,361 businesses, the majority of which have revenues less than $5 million.

By Jeremy Quittner, Staff writer for Inc. Magazine