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Small business optimism rises with expectation to hire in 2015

Dun Bradstreet Credibility Corp. and Pepperdine University

Small and medium-sized businesses expect to hire more employees in the next six months and perform better in 2015, according to Q1 2015 results from the latest Dun & Bradstreet Credibility Corp. and Pepperdine Private Capital Access (PCA) Index. However, respondents report that raising financing for operations continues to be difficult.

“Improved performance by small and mid-sized business is traditionally the barometer of a full economic recovery”

Thirty-four percent (34%) of respondents indicated that they plan to hire up to two new employees in the next six months; 15% indicated they would hire three to five, and 5% expected to hire up to ten new employees. Ninety-five percent (95%) of respondents reported that they had no plans to decrease the number of employees in the next six months.

“The new data confirms that small and medium-sized businesses are finally recovering from the Great Recession. This is vital news for the economy in general and for the unemployment rate specifically,” said Jeff Stibel, Chairman and CEO of Dun & Bradstreet Credibility Corp. “Because small and medium-sized businesses provide the majority of job growth, they make a big impact on the overall unemployment rate. We saw consistently high unemployment until last year when small and medium-sized businesses began to recover. The optimism expressed in our survey suggests that businesses feel they are finally turning the corner.”

Small and medium-sized businesses also reported that they expect better financial performance this year, compared to last year. Twenty-eight percent (28%) expected to perform substantially better, while 48% expected to perform somewhat better. Only 7% expected to perform somewhat or substantially worse than last year.

“Improved performance by small and mid-sized business is traditionally the barometer of a full economic recovery,” said Craig R. Everett, Ph.D., Assistant Professor of Finance and Director of the Pepperdine Private Capital Markets Project. “But while it’s true that the uptick in hiring projections and higher wages is good news for American workers, not everything is rosy. Smaller businesses need to have access to financing to invest in growth. Our study suggests that these businesses still face hurdles to successfully raising financing to fuel operations and expansion.”

Dun & Bradstreet Credibility and Pepperdine University PCA quarterly index, which measures the accessibility and demand for capital among the nation’s small and medium-sized businesses as well as the transparency and efficiency of private financing markets, found that despite optimism, businesses report significant financing challenges.

Approximately two-thirds of businesses still find it challenging to raise equity financing (63%) and debt financing (61%).

Success rates from financing in the prior three months declined overall from the previous quarter, but larger businesses generally fared better. Overall, 41% of businesses reported successful bank loan raises, an 8% decline from last quarter. Businesses with revenue under $5 million reported a success rate of 35%, an 8% decline from last quarter, while businesses with revenue between $5-100 million reported a success rate of 85%, a 9% increase. Both small and medium-sized businesses continued to have less success with asset-based loans (19% success rate overall).

Overall, 30% of businesses planned to seek financing over the next six months, while 52% indicated they would not. Among businesses that reported need for financing, 53% said they need it for planned growth or expansion, 52% need it for working capital fluctuations, and 46% need it for growth due to increased demand.

Other key findings from the Index include:

  • Forty percent (40%) of businesses are extremely confident their businesses will grow in 2015; another 44% are somewhat confident.
  • Fifty-three percent (53%) of businesses indicated that the current business environment is restricting growth opportunities; 46% believe it restricts their hiring abilities.
  • Eighteen percent (18%) of respondents said “uneven cash flow” was their most difficult challenge of 2014 and 37% said it was generating new customer leads.
  • Businesses in Kentucky, Utah, New Mexico and Florida anticipate the most growth or expansion, while businesses in Kansas, Iowa, Oklahoma, Virginia and Connecticut expect the least.
  • Businesses in Utah, New Jersey, Ohio, Georgia and Massachusetts are most likely to hire new workers, whereas businesses in Kansas, Oklahoma, Washington, Iowa and South Carolina are least likely to hire.

The Q1 2015 Index report was derived from 3,573 completed responses collected from small and medium-sized businesses from January 20 to February 6, 2015 and contrasted with survey results collected from all four quarters of 2014.

Download the latest index data at https://bschool.pepperdine.edu/about/people/faculty/appliedresearch/research/pcmsurvey/pca-index/