2011 mid-year economic report - nsba

2011 Mid-Year Economic Report

2011 Mid-Year Economic Report 2 National Small Business Association

MethodologyThe 2011 Mid-Year Economic Report was conducted on-line June 24 through July 11, 2011 among 400 small-business members of NSBA representing every industry in every state in the nation. While the results in this survey can be extrapolated to the at-large small-business community, it is worth mentioning that NSBA members tend to be older, more well-established small businesses.

Since 1937, NSBA has been the nation’s leading small-business advocate. As part of NSBA’s mission to address the needs and represent the concerns of the small-business community, we conduct a series of surveys and quick polls throughout the year. Among those are the two NSBA Economic Reports. The Mid-Year Economic Report, released late-July, and Year-End Economic Report, released late-January, use NSBA survey data to provide a snapshot of how small businesses are dealing with the current economic situation. The 2011 Mid-Year Economic Report shows that small-business owners are feeling slightly less optimistic about the outlook of their own firms and are increasingly concerned about the overall U.S. economy.

Although just six months ago optimism appeared to rebound following the somewhat negative 2010 Mid-Year Economic Report, small businesses once again find themselves facing a likely economic slump. The number of small-business owners—88 percent—anticipating a flat or recessionary economy is at its highest point since July 2009. There also was a significant increase in small-business owners who believe the economy is worse off today than it was just six months ago.

As is to be expected from entrepreneurs and small-business owners—who generally are more optimistic about their own businesses than they are about the overall economy—there has been limited, positive movement in terms of past and projected

employment. Although still registering an overall net decrease in employment for the past 12 months, small businesses reported the lowest net decreases in employment in three years. When asked in December 2010 how their number of employees changed over the last 12 months, there was a 15 percent net decrease. In July 2011, there was a four percent net decrease. Similarly, when asked to project employment growth in the coming 12 months, there was an increase from 13 percent net projected employment growth six months ago to 17 percent net projected employment growth today.

Unfortunately, another key indicator, past and projected revenues, didn’t fare as well. Revenue projections for the coming 12 months dipped slightly from net revenue growth of 35 percent in Dec. 2010 to just 29 percent today. There was a slight decrease—down from 66 percent to 64 percent—in the number of small-business owners who feel confident about the future of their business. Additionally, when asked to estimate when they expect to see growth opportunities for their business, 40 percent said they expect no such opportunities in the coming year.

One of the growing concerns of small businesses is the national debt. When asked to rank their top three concerns, 30 percent of small-business owners picked the deficit, which came in fifth, after economic uncertainty, declines in customer spending, health insurance costs

and regulatory burdens. Financing also continues to be an issue

for a significant number of small businesses, with 36 percent reporting an inability to garner adequate financing. Credit cards appear to be growing in cost with a jump from 13 percent to 19 percent of small-business owners who pay an interest rate that is 20 percent or higher.

The cost of health care continues to be an issue with 44 percent of small-business owners who provide health insurance experiencing a premium increase of 11 percent or more. These costs are coming to a breaking point where employers have fewer and fewer benefit design options and are increasingly forced to make difficult employment decisions as a result. There was a notable jump in the number of small-business owners—up to 32 percent from 24 percent—who reported they have held off on hiring a new employee due to health care costs. There also was an increase in those who reported they were forced to lay off an employee due to health care costs.

When it comes to policy, small-business owners reacted with increasing concern to the growing U.S. debt and rated “reducing the national deficit” the number one priority for Congress and the administration to address. Small-business owners’ confidence and outlook appears to be influenced by their concern over the deficit and the ongoing lack of a long-term solution.

“When asked to estimate when they expect to see growth opportunities for their business, 40 percent said they

expect no such opportunities in the coming year.”

Started in 1937, NSBA is the nation’s oldest small-business advocacy group representing employers in every state. As a strictly nonpartisan organization, NSBA reaches more than 150,000 employers in all sectors and industries of the U.S. economy from retail to trade to technology. Our members are as diverse as the economy that they fuel. NSBA’s policy positions and priorities are formulated through robust volunteer leadership and member participation, and are reflective of our nation’s 29.6 million small businesses.

2011 Mid-Year Economic Report 2 National Small Business Association 2011 Mid-Year Economic Report 3 National Small Business Association

Thinking about the next 12 months, do you anticipate:Small Business ConfidenceThe majority of small-business owners (58 percent) expect a flat U.S. economy in the coming year. Perhaps more alarming is the fact that the number of small businesses expecting a recession more than doubled in the last six months from 13 percent in December 2010 to 30 percent today. Correspondingly, the number of small-business owners anticipating economic expansion dropped from 22 percent to 12 percent, the lowest level reported since July 2009.

Small-business owners were asked their opinions of the overall U.S. economy today, as compared to six months ago, one year ago and five years ago. Compared to the national economy six months ago, 20 percent said that today’s national economy is better, 47 percent said it is worse and 33 percent said it is doing about the same. This represents a notable deterioration from the past two surveys. When compared with one year ago, 52 percent said the national economy today it is worse, 24 percent said it was better, and 25 percent said it is doing about the same which mirrors the growing negativity surrounding today’s economy.

The overwhelming majority (72 percent) said that today’s national economy is worse off than it was five years ago. Given the ongoing economic difficulties the U.S. has faced the past three years, small-business owners overwhelmingly cited economic uncertainty as the most significant challenge to the future growth and survival of their business. According to the July 2011 survey, 68 percent cited economic uncertainty as the number one challenge facing their business, followed by decline in consumer spending (40 percent), cost of health insurance benefits (33 percent), regulatory burdens (31 percent), the growing national debt (30 percent), federal taxes (22 percent), and lack of available capital (22 percent). The number of small businesses selecting the growing federal debt increased markedly from 19 percent in December 2010.

In keeping with the nature of being an entrepreneur, the majority of small-business owners (64 percent) reported feeling confident about the future of their firms. This means that more than one-third of small-business owners are not confident in the future of their own business.

NSBA reported in its 2010 Year-End Economic report that small-business confidence appeared to be turning , but warned that these modest steps forward in confidence and business growth should not be taken as an indication that the U.S. economy had fully recovered. As this report demonstrates, the small-business community still is struggling.

Dec. 09

Dec. 09

July 10

July 10

Dec. 10

Dec. 10 July 11

July 11July 09

July 09

Dec. 08

Dec. 08

Aug. 08

Aug. 08

From a financial perspective, how do you feel right now about the future for your business?

CONFIDENT

75%62%

66%58%61% 59%

NOT CONFIDENT

25%38% 34%

42% 39% 41%

When comparing today’s economy, would you say the national economy is:

A RECESSION

64%

26%

42%

21%29%

13%

30%

12%

58%

A FLAT ECONOMY

53%

33%

63%59%

51%

65%

ECONOMIC EXPANSION

21%

3%7%

16% 13%22%

64%

36%

Better Off Better OffWorse Off Worse OffAbout The Same About The Same

24%20%

52%47%

25%33%

28% 27%

44%

29%28%

43%35%

27%

42%

31%

23%

42%

July 10

SIX MONTHS AGO ONE YEAR AGO

Dec. 10 July 11


The 2011 Mid-Year Economic survey took a close look at how small businesses fared over the past 12 months. Small-business owners were asked how much change their businesses had experienced in gross sales/revenues and net profits, and the results show a continuation of the trending positive gains in revenues—if at a somewhat more modest pace. Profits, on the other hand, experienced a hiccup, with a drop in the number of small businesses that experienced gains in profit.

There was no change in the number of small businesses (39 percent) reporting an increase in revenues from the December 2010 survey. There was, however, a notable decline in those reporting decreases in revenue from 43 percent in December 2010 to 37 percent today. This slowing of drops in revenue amounted to a very slight net increase (two percent) in revenues and represents the first time in three years that revenues have shown a net positive.

Unfortunately, profi ts did not see such an increase. Thirty-two percent of businesses reported increases in

profi ts—down from 36 percent in December

2010. The number of small businesses reporting decreases in profi ts remained at 46 percent resulting in a net 14 percent decrease in profi ts.

Past Business Growth

No change

Total Decrease

Total Increase

22%

16%

48%

53%

62%

43%

64%

37%

30%

21%

22%26%

39%39%

14%21%

18%24%

38%

45%

17%

Changes in gross sales/revenues over the last 12 months:

“The slowing in revenue decreases resulted in positive net revenue

gains for the fi rst time inthree years.”

Dec. 09July 10 July 11Dec. 10

July 09Dec. 08Aug. 08

Do you believe there will be growth opportunities for your business in the coming year?

Yes 40% 45% 47% 52%No 45% 40% 44% 51%My business is already growing 15% 15% 9% 7%

July 11 Dec. 10 July 10 Dec. 09


Small-business owners also were asked to rate their level of expected business growth for the coming 12 months. Unfortunately, the positive projected gains reported in December 2010, when a majority of respondents (54 percent) projected an increase in revenues, did not persist. Forty-nine percent of small businesses reported projected revenue growth for the coming 12 months, which is still notably higher than projections throughout 2009 and most of 2010. Those projecting revenue decreases held steady at 19 percent, resulting in overall net gains in revenue projections of 29 percent.

There were similar set-backs in the number of small businesses projecting profit gains. Forty-three percent of small businesses projected profit increases, down from 44 percent in December 2010. Those projecting decreases in profit increased from 24 percent to 26 percent. Both changes are minor and still result in an 18 percent net gain in projected profits.

Since 1993 when NSBA began asking these questions, small businesses have projected net increases in both revenues and profits. However, beginning in December 2008, both indicators showed net decreases. In December 2009, revenue projections actually resulted in net gains, but profit remained a net decrease. Today, both indicators are back on the side of net positives.

When asked about which future growth strategies they plan to implement in the coming 12 months, the top four responses were: new advertising and marketing strategies (43 percent), expanded Internet presence and e-commerce (36 percent), and strategic alliances (26 percent). Unfortunately, “no growth strategies planned” came in at fourth with 24 percent. Hiring a new employee garnered 21 percent.

The timing of growth is another important component of the survey. Forty percent of small-business owners said they expect growth opportunities in the coming year. Unfortunately, there have been continued drops since December 2009 when 52 percent projected some kind of growth in the coming year. Just six months ago, 45 percent said they anticipate growth in the coming year. Among the 40 percent anticipating growth in the coming year, six percent expect growth opportunities in the next three months, nine percent expect growth opportunities in three to six months, and 26 percent project growth opportunities in six to twelve months. Fifteen percent—unchanged from December 2010—report that their business already is growing. An increasing number of entrepreneurs (45 percent) do not believe there will be any growth opportunities for their business in the coming year.

Projected Business Growth

Total increase

Changes expected in gross sales/revenues over the next 12 months:

No change

Total Decrease

Total Increase

30%

20%

57%

21%

43%44%

54%49%

26%

31%

32%27%

31%

22%

50%

23%

31%25%

19%19%

47%

Which of the following growth strategies will you use in the next 12 months? (Please check all that apply)

“Unfortunately, 45 percent do not believe there will be any growth opportunities for their business in the coming year.”



July 11 Dec. 10 July 10New advertising and marketing strategies

43% 42% 37%

Internet / Expand E-commerce 36% 34% 34%

Strategic alliance 26% 24% 30%

No growth strategies will be used in the next 12 months

24% 24% 22%

Hire new employees 21% 20% 14%

Joint Venture 15% 13% 14%

Investments in R&D 14% 11% 11%

Other 11% 11% 7%

Expand operations to new facilities/add additional stores

10% 8% 7%

Acquisition 7% 8% 8%

Outsourcing 9% 7% 10%

Merger 5% 3% 5%


Changes in number of employees over the last 12 months:As the leading contributor of net new jobs to the U.S. economy, small-business job growth has been a critical piece of NSBA’s surveys and polls. In the NSBA Economic Surveys, small-business owners are asked how their firms have fared over the past 12 months in terms of number of employees. Unfortunately, small-business owners continue to be financially stymied and unable to grow their business, thereby restricting their ability to create jobs.

Although there were notable gains in employment, this indicator was similar to revenues and profits over the past 12 months, resulting in a net decrease. The gains in employment are not insignificant—22 percent of small businesses reported employment gains, up from 15 percent in December 2010. Accordingly, there was a drop in the number of small businesses cutting employment from 31 percent in December 2010 down to 26 percent today. This growth is a very positive step and resulted in the lowest net job loss in three years.

While still representing an overall net loss, it is far smaller (four percent net loss) than the 15 percent net loss just six months ago. Of course, any net loss does not signify the kind of job creation small businesses historically have achieved after a recession.

Continuing the trend started in December 2010, 43 percent of small-business owners report increasing employee compensation—up from 36 percent six months ago. There also was a minor increase—from 17 percent to 19 percent—of those who reported decreases to employee compensation. This signals that small-business owners are trying to compensate their existing employees who likely have had to take on additional roles and tasks during the economic downturn.

Past Job Growth

Aug 08 Dec 08 July 09 Dec 09 July 10 Dec 10 July 11

60%

55%

50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

TOTAL INCREASE

TOTAL DECREASE

NO CHANGE


Over the past two years, job growth projections have fluctuated markedly. In July 2009, 13 percent of small-business owners projected employment increases; in December 2009, 24 percent projected increases; in July 2010 22 percent did so, and in December 2010 25 percent projected increases. Today, 29 percent of small-business owners are projecting employment increases in the coming 12 months. Since July 2009, projected job growth has made a steady climb from net decreases of 16 percent to today’s net increase of 17 percent.

There also was positive movement among small-business owners who project no change whatsoever in employment. Although still the majority, small businesses that project no employment growth in the coming year dropped from an all-time high of 64 percent in December 2010 to 60 percent today. Given the historic role small business has played in job creation, this stagnation underscores the strong need to support small-business growth and ensure impediments, such as an inability to finance growth, are removed. Creating an environment where small businesses can start, thrive and grow will enable the U.S. to continue more promptly toward lasting economic recovery.

Past Job Growth

Projected Job GrowthChanges expected to the number of employees over the next 12 months:

“The number of small-business owners projecting no change in employment has dropped slightly from its three-year high of 64 percent just six months ago

down to 60 percent today.”

No change

Total Decrease

Total Increase

13%

58%

30%

56%

24%22%

25%29%

58%61%

64%60%

18%

56%

29%

14%

18%17%

11%12%

26%




Small-Business FinancingAs NSBA repeatedly has warned over the last three years, small-business access to capital is a significant problem. There does appear, however, to be a slight easing of credit among respondents. When asked what are the most significant challenges facing their business, 22 percent said lack of available capital—down from 26 percent in December 2011 and 29 percent in July 2010.

The prospect of getting financed for a small business—even in a growing economy—is very difficult simply due to the fact that many small businesses lack the assets necessary for a traditional bank loan, making them a riskier lending option for banks. Over the last three years, the number of small businesses able to obtain adequate financing for their business had steadily decreased. That trend, however, came to a halt in December 2010.

Today, the number of small-business owners who report being able to obtain adequate financing for their business remains unchanged from six months ago at 64 percent. That number is up from just 59 percent one year ago in July 2010—the lowest it had been since NSBA began asking this question back in 1993. The fact that access to financing did not deteriorate is a positive step, but lending remains an issue. The long term average is 68 percent of small businesses who are able to obtain adequate financing. It is worth noting that more than one-third (36 percent)—which could translate into more than 10 million—of the nation’s small businesses are not able to get adequate financing.

NSBA has been asking small-business owners if their business had been negatively impacted by the credit crunch since early 2008. In February

What types of financing has your company used within the past 12 months to meet your capital needs?

Small-business owners reporting being impacted by the credit-crunch.

2008, 55 percent responded that it had. In August 2008 that number jumped to 67 percent, and continued to rise to 69 percent in December 2008 and hit a peak of 80 percent in July 2009. Despite a slight easing in December 2009 down to 78 percent, the number skyrocketed in July 2010 to its highest point of 80 percent and then receded back down to 75 percent in December 2010, its lowest point in two years. Today, that number continues to drop with 73 percent of small-business owners reporting their business had been impacted by the credit crunch.

The availability of capital is a critical component to business growth and job creation for small businesses. Since NSBA began asking these questions back in 1993, there has been a direct correlation between access to capital and job growth—when capital flows more freely, small businesses add new jobs. Today is no different: over the past 12 months, small businesses reported a five-point increase in employment while during that same time there was an 11-point increase among small businesses who reported being able to garner adequate financing for their business.

Among small-business owners for whom capital availability has been a problem, 36 percent state that they have been unable to grow or expand the business, down from 41 percent in December 2010. Eighteen percent state that they have been forced to reduce their number of employees, down from 24 percent. Of particular concern was the high numbers of small businesses who reported being unable to increase inventory to meet demand (10 percent) and those unable to finance increased sales (18 percent.) This means that, although growth opportunities exist for these businesses, they are being held back by a lack of capital. A substantial number of small businesses were forced to reduce employee benefits as a result of their inability to garner financing.

In the last six months, there was an increase in small-business use of bank loans (up from 45 percent to 49 percent,) credit cards (up from 36 percent to 37 percent,) private loans (up from 15 percent to 21 percent,) and vendor credit (up from 23 percent to 25 percent.) The number of small businesses using no financing options also increased slightly from 21 percent to 23 percent. These increases likely mean that, while there are fewer businesses using financing, those that do are using more options for financing.

Prior to the December 2009 survey, credit cards had been the number one source of financing for small-business owners, Today, however, they have dropped to the number three slot, just behind traditional bank loans at number one and earnings of the business at number two.

In the July 2011 survey, small-business owners were asked to estimate their total small-business related debt today, two years ago and five years ago. Five years ago, 70 percent of small-business owners reported carrying any small-business debt. That increased to 75 percent two years ago and is up at 78 percent today. Interestingly, the average amount of debt reported five years ago was the highest at $1.504 million. Two years ago, the average debt was $1.049 million and today it is $1.108 million.

LoansThe number of small businesses relying on traditional bank loans increased to 49 percent, which is the highest it has

78%80% 80%75% 73%69%68%

Dec. 09 July 10 Dec. 10 July 11July 09Dec. 08Aug. 08

July11

Dec. 10

July 10

Dec. 09

July09

Dec. 08

Aug. 08

Bank loan 49% 45% 43% 46% 53% 44% 50%

Earnings of the business

43% 45% 42% 43% 43% 51% 49%

Credit cards 37% 36% 39% 41% 43% 49% 41%

Vendor credit 25% 23% 20% 24% 29% 27% 22%

Used no financing 23% 21% 21% 21% 16% 22% 17%

Private loan (friends or family)

21% 15% 19% 18% 20% 16% 12%

Leasing 10% 9% 10% 8% 9% 8% 9%

Other (please specify)

5% 7% 7% 7% 6% 8% 8%

Small Business Administration loan

4% 4% 4% 4% 4% 3% 5%

Selling/pledging accounts receivable

4% 4% 3% 3% 3% 3% 2%

Private placement of debt

2% 2% 4% 2% 3% 4% 2%


been in two years. The fact that fewer businesses relied on earnings of the business is a likely indicator that businesses have few other options for those looking for financing. Twenty-one percent of small-business owners reported less favorable terms on their loans in the last year, and only seven percent report that the terms of their loans have become more favorable.

Underscoring this very slight thawing, the most recent Federal Reserve Senior Loan Officer Opinion Survey (April 2011) found that only four percent of large banks—down from October 2010’s reported 13 percent—eased their lending standards for small-businesses. This was the first time lending standards had eased since late 2006. Among all banks, seven percent reported easing lending standards for small firms. That same survey showed that 3.8 percent of all banks actually lowered the size of credit lines but 27 percent eased the cost of credit lines for small firms, making them more affordable. There still exists a huge discrepancy between large and small companies, however. Thirty-six percent of all banks report easing the cost of credit lines for large firms—significantly more than those who did the same for small business.

The implications of the collapsed housing market continue to haunt the small-business community. Nearly one in five (19 percent) small businesses report leveraging their business loans with a second mortgage. In addition to using a second mortgage, small-business owners also use business savings (40 percent,) personal savings (36 percent,) accounts receivable (33 percent,) and credit cards (33 percent) to leverage their business loans.

Credit CardsIn the last year, credit card interest rates have increased for small businesses. There was a six point jump from 13 percent to 19 percent of businesses who pay 20 percent or more in credit card interest rates. Furthermore, 41 percent of small businesses report being forced to pay an average interest rate of 15 percent or more, and the overall average interest rate charged on small-business cards is 15 percent.

Despite this increase and the fact that 60 percent—up from 58 percent just six months ago—report worsening credit card terms, there was a small increase in small-business usage of credit cards from 36 percent in December 2010 to 37 percent today. Given the ongoing difficulty small-business owners experience garnering other types of financing, and the increased targeting of small businesses by credit card companies, this is not surprising.

According to a May report from the Pew Charitable Trusts (Pew), since enactment of the NSBA-supported Credit CARD Act of 2009, solicitations for business credit cards accounted for four percent of all direct-mail credit-card offers—up from less than two percent in 2006. The Pew study also found huge spikes between 2008 and 2009 when business credit card solicitations comprised between 10 and 20 percent of direct mail credit card offers.

Although NSBA was strongly supportive of the Credit CARD Act., Congress failed to include language to specifically protect small-business cards, and they therefore do not carry any of the protections contained in the law.

According to the Pew study, 80 percent of business credit cards are saddled with an “any time” change clause—

Is your business able to obtain adequate financing?

What is the approximate interest rate you are charged on your primary credit card?

Yes No

61% 59%64% 64%

39% 41%36% 36%

62%

38%

67%

33%

78%

22%

Dec. 09 July 10 Dec. 10 July 11July 09Dec. 08Aug. 08

which includes the right to retroactively increase interest rates on existing balances—with no right to opt out, something the Credit CARD Act prohibits on consumer credit cards. The study also found that penalty fees for business credit cards are virtually unrestricted, and a whopping 41 percent of small-business credit cardholders pay an annual fee compared to only 14 percent of consumer cardholders.

One particularly problematic trend that began in late-2008 was credit-card companies arbitrarily reducing the credit limit on a card—or shutting down the card entirely. For a small-business owner carrying a balance, this unexpected reduction results in a diminished credit score, as the owner suddenly is utilizing more of his/her available credit. With banks increasingly reliant on personal credit scores in their underwriting practices, this credit score hit can be quite problematic.

When asked in December 2008, 28 percent of small-business owners responded that they had experienced a decrease in their line(s) of credit or a credit-card limit in the past six months. In July 2010, that number had increased to 36 percent. Today, 24 percent of small-business owners report being subjected to such a decrease in the last six months. Although this represents movement in the right direction, the fact that one-fourth of small-business owners are having this critical credit source reduced is problematic.

July 11 Dec. 10 July 10 Dec. 09

Less than 10 22% 30% 13% 14%

10 to 15 33% 33% 37% 33%

15 to 19 22% 24% 27% 28%

20 and more 19% 13% 23% 25%

Do you accept credit or debit card payments for your goods and/or services?

55%54% 53%

45% 46% 47%

July 11 Dec. 10 July 10

July 11 Dec. 10


Public PolicyAmong the issues small-business owners ranked as top issues for Congress and the administration to address were reducing the national deficit (34 percent,) reducing tax burden (16 percent,) reigning in the costs of health care reform (13 percent,) reducing the regulatory burden (13 percent,) and increasing access to capital for small businesses (13 percent.)

National Deficit There was a significant increase over the last six months among small-business owners who rated “reduce the national deficit” as their number one priority for policymakers to address. In December 2010, 23 percent rated it the top issue, and today 34 percent ranked it at the top of their list.

The ongoing debate and lack of a clear, long-term solution has added dramatically to small-business owners’ concerns and has contributed to the relatively negative outlook for the overall U.S. economy. Nearly one in three (30 percent) small-business owners said the growing national debt was among the top five challenges facing the future growth and survival of their business—up from just 19 percent six months ago.

Among the top rated fixes for the national deficit, small businesses supported: reform and reduce entitlement spending (72 percent,) significant cuts for certain federal agencies (62 percent,) an across the board budget cut (56 percent,) eliminate all credits and deductions with a significantly lower income tax (36 percent,) and eliminate certain tax credits and deductions—even those which may benefit my business (26 percent.)

In early 2011, NSBA’s members voted deficit reduction among the top ten priorities for the organization in the coming two years. In the ensuing months, NSBA has called on policymakers to embrace a two-pronged approach to addressing the deficit: tax reform and entitlement reform.

TaxesBroadening the tax base by lowering all individual and corporate tax rates and eliminating certain deductions will spur economic growth and lead to increased tax revenues. Furthermore, the growing cost of entitlement programs such as Social Security and Medicare weighs heavily on small businesses.

Small business consistently ranks reducing the tax burden among their top issues for Congress and the administration to address. In the most recent survey, small businesses placed tax reform second only to the national deficit in terms of policy initiatives lawmakers ought to pursue.

In the context of deficit reduction, various lawmakers have offered proposals to ease the corporate tax rate. However the corporate tax rate is just one small piece of the equation—the overwhelming majority of small businesses are pass-through entities and therefore pay business taxes through their individual income tax. Allowing the smallest businesses to pay a much higher tax on their business income than multinational, multi-billion corporations undercuts any semblance of fairness.

Which one of the following issues do you believe Congress and President Obama’s administration should address first?

July 11 Dec. 10Reduce the national deficit 34% 23%Reducing the tax burden 16% 19%Reign-in costs of health care reform 13% 17%Reducing the regulatory burden on businesses 13% 17%Increase small business access to capital 13% 15%

Which of the following deficit-reducing proposals would you support? (Check all that apply)

July 11 Dec. 10Reform and reduce entitlement spending 72% 70%

Significant cuts for certain federal agencies and programs

62% n/a

An across-the-board budget cut for federal agencies 56% 70%

Eliminate all tax credits and deductions in conjunction with dramatically lower income tax rates

36% 40%

Eliminate certain tax credits and deductions—even those which may benefit my business

26% 24%

Greater authority of the administration to reduce Congressionally-approved spending

24% 29%

“In the most recent survey, small businesses placed tax reform

second only to the national deficit in terms of policy initiatives

lawmakers ought to pursue.”


If capital availability is a problem for your business, what is the effect on your operations?

Health CareSince the passage of the health care reform law—legislation which NSBA ultimately opposed due to its inability to truly address rising costs—small-business owners have expressed significant confusion about how the new health care law will impact their business. Today, however, there appears to be a slight increase in their understanding of the new law.

Nineteen percent of small businesses—up from 15 percent in December 2010—said they have a clear understanding of how the new law will impact their business. Meanwhile, 63 percent, up from 53 percent, said they have a limited understanding and 18 percent, down from 32 percent, said they do not understand at all how their business will be impacted.

When asked—if their business is eligible for the small-business health care tax credit—how much the credit will help their business, the most common response (35 percent) was that they were unsure if they qualify. This indicator was down from six months ago, however, when 43 percent said they were not sure if they qualify. Twenty-two percent responded that they do not qualify and the remaining 43 percent who are eligible reported mixed levels of assistance from the credit. Among those that said they are eligible, only four percent said the credit will help their business significantly, seven percent said it will help moderately, 13 percent said it will help just a little and 19 percent said it will not help at all.

Small businesses also continue to report dire consequences of rising health insurance costs. When asked how the cost of their health insurance had changed since the law passed, 44 percent reported increases of more than 11 percent, among those, 15 percent experienced an increase in excess of 20 percent.

To address these costs, small businesses have implemented the following changes: 50 percent increased the deductible, 50 percent held off on employee compensation increases, 46 percent increased the employee share of the premium, 42 percent reduced employee benefits, 28 percent switched insurance carriers, 32 percent held off on hiring a new employee, and 24 percent held off on implementing new growth strategies.

Of particular note is the significant increase in the number of small-business owners who reported they have held off on hiring a new employee due to health care costs. Just six months ago, 24 percent of small businesses reported holding off on hiring whereas today, 32 percent—one in three—small business owners are not hiring directly due to increasing health care costs.

There also were marked increases in the last six months among small businesses that held off on salary increases (50 percent, up from 45 percent,) held off on growth strategies (24 percent, up from 18 percent,) laid off an employee (13 percent, up from eight percent,) and delayed the purchase of new equipment (26 percent, up from 17 percent.)

How well would you say you understand how the new health care reform law is going to impact your business?

I have a limited understanding

I do not understand

at all

I have a very clear

understanding

If you qualify for the small-business health care tax credits, how much will they help your business?

July 11 Dec. 10Significantly 4% 3%

Moderately 7% 6%

Just a little 13% 11%

Not at all 19% 17%

I do not qualify 22% 20%

I’m not sure if I qualify 35% 43%

July 11 Dec. 10

15%

32%

53%

19%18%

63%

July 11

I plan to maintain my grandfathered insurance plan 28%

I don’t plan on being grandfathered but still plan to offer health insurance

11%

I will likely drop my insurance 15%

I don’t currently offer insurance and don’t plan to 19%

I don’t currently offer insurance but do plan to in the near future

3%

Not sure 25%

Which of the following statements is most accurate for your business based on the new benefit plan and other requirements that go into effect in 2014?

“More and more small-business owners are reporting at least a limited understanding of the new health care law, with 82 percent stating they have

at least a minimal understanding.”


The never-ending premium increases are leading to a breaking point where employers have fewer and fewer benefit design options and are increasingly forced to make difficult employment decisions as a result. Such decisions can easily stymie any kind of long-term U.S. economic recovery.

When it comes to key issues with the health care reform law, a good deal of confusion still exists over whether or not a small businesses health insurance plan can be grandfathered. Nearly one-third (28 percent) plan to maintain a grandfathered plan, meaning it offers benefits at least as good or better than the required benefit package which will go into effect in 2014. One-fourth simply are unsure of what they will do. Fifteen percent said they will likely drop their insurance altogether and 11 percent said they don’t plan on being grandfathered but still plan to offer a health benefits plan. Nineteen percent said they do not currently offer insurance and do not plan to, whereas only three percent said they currently don’t offer and plan to in the near future.

Regulatory BurdenSmall-business owners face unique challenges in navigating federal regulations. Since NSBA has been conducting these surveys, reducing the regulatory burden has consistently been ranked a top issue for Congress and the administration to address. According to the July 2011 survey, regulatory burdens represent the fourth largest challenge to the future growth and survival of small firms—even before federal taxes and the national deficit.

There exists among the small-business community growing concern about regulations and the burdens they impose. Despite some key progress—including passage of the Plain Language Act and several recent moves by the administration to more closely examine federal regulations—new burdensome regulations continue to stir concerns among small businesses. Specifically, regulations promulgated by the National Labor Relations Board and Department of Labor would unfairly tilt the union elections process against small businesses and put them at a competitive disadvantage to both unions and larger businesses.

The number of small-business owners who picked regulatory burdens as a key challenge to the future growth and success of their business increased from 30 percent to 31 percent. Conversely, however, the number of small businesses that ranked reducing regulatory burdens as a top priority for Congress and the administration to address decreased from 17 percent to 13 percent. It still is in the top five and likely decreased due to dramatic increases in concern over the national deficit.

Access To CapitalAlthough many of the financing indicators in this survey point to a slight thawing of credit markets for small businesses, it is important that the efforts to expand access to capital not be abandoned. More than one third (36 percent) of small businesses still cannot obtain adequate financing for their business, which has drastic implications on business growth.

If capital availability is a problem for your business, what is the effect on your operations?

July 11 Dec. 10Unable to grow business or expand operations 36% 41%

Reduced the number of employees 18% 24%

Unable to finance increased sales 18% 18%

Reduced benefits to employees 12% 17%

Unable to increase inventory to meet demand 10% 13%

Closed stores or branches 2% 4%

Other 3% 4%

July 11 Dec. 10Increased deductible 50% 55%

Held off on salary increases for employees 50% 45%

Increased employee share of premium 46% 42%

Reduced employee benefits 42% 37%

Held off on hiring a new employee 32% 24%

Switched insurance carriers 28% 25%

Delayed purchase of new equipment 26% 17%

Held off on implementing growth strategy 24% 18%

Laid off an employee 13% 8%

Dropped insurance 9% 5%

In what ways have you coped with rising health care costs? (Check all that apply.)

“More than one third of small businesses still cannot obtain adequate

financing for their business.”

“Regulatory burdens represent the fourth largest

challenge to the future growth and survival

of small firms—even before federal taxes and the

national deficit.”


In late-2010, Congress passed, and the president enacted, sweeping legislation, the Small Business Jobs and Credit Act which included myriad provisions to improve small-business access to capital. Specifically, the bill created the NSBA-supported Small Business Lending Fund (SBLF) which recently disbursed $337 million to 23 community banks for small-business lending. In total, less than 900 community banks applied for SBLF funding, seeking a total of $11.6 billion in capital.

ExportingExporting remains an untapped marketplace at a time when small business could use it the most. According to the July 2011 survey, 38 percent of small businesses—up from 35 percent in December 2010—have exported goods or services to a customer outside the U.S. Among the 62 percent that never have exported a good or services, 10 percent said they would be more likely to consider doing so in the last six months. This is down slightly from 12 percent in December 2010, likely due to the negative economic outlook and the perceived time/cost associated with launching a new exporting operation.

Among the various challenges of exporting cited by small businesses are: limited goods and/or services available to export (37 percent, up from 31 percent,) concerns over getting paid (28 percent, down from 30 percent,) the confusing and difficult nature of exporting (31 percent, up from 22 percent,) and costs associated with exporting (17 percent, up from 12 percent.)

Percentage of Small Businesses Carrying Any Debt (Includes loans, credit cards, property mortgage, invoices owed, etc)

What do you consider the largest challenges to selling your goods and/or services to foreign customers? (Check all that apply)

July 11 Dec. 10

I have limited goods and/or services that are exportable

37% 31%

I worry about getting paid 28% 30%

It is confusing and difficult to do 31% 22%

It is very costly 17% 12%

It takes time away from my regular, domestic sales

15% 12%

I can’t get financing to offer foreign customers

5% 7%

75%70%

78%

Today 2 Years Ago 5 Years Ago

Correlation Between Availability of Capital and Employment Growth

100%

90%

80%

70%

60%

50%

40%

30%

20%

10% 0%

Increased EmploymentAble to get financing

19931994

19951996

19972000

2007Feb. 0

8

Aug. 08

Dec. 08

July 09

Dec. 09

July 10

Dec. 10

July 11


CONCLUSIONSmall employers comprise 99.7 percent of all employer firms in the U.S. One in two workers in the private workforce run or work for a small business, and one in four individuals in the total U.S. population is part of the small-business community (equaling 23 percent of the population.) Firms with fewer than 500 employees accounted for 64 percent of net new jobs between 1993 and the third quarter of 2008. Thirty-two percent of those gains came from the creation of new, small firms.

According to SBA’s Small Business Economic Indicators for 2003, when the economy gained momentum after the previous downturn in the early 1990s, firms with fewer than 500 employees increased their net employment in the first year after the recession, while large firms continued to shrink. From March 2000 to March 2001, small firms added 1.15 million net new jobs while large firms lost 0.15 million net new jobs.

While small business has struggled during the economic downturn and has been slow to realize its historic role in post-recession job creation, there are some faintly positive economic indicators in NSBA’s most recent survey. Small-business owners have greater trepidation about the U.S. economic outlook which is slowly seeping over into their confidence in their own business

The modest gains in access to capital and employment certainly are positive but could prove to be short-lived, given the widespread concern small-business owners have expressed about the overall economy. NSBA believes more can, and must be done to ensure entrepreneurship remains a viable, attainable option for every American. Government leaders ought heed advice to act on items that will spur economic growth, but also to show restraint when it comes to any proposal that could further shake small-business owners’ confidence and exacerbate already lacking small-business job creation capabilities.

What are the three most significant challenges to the future growth and survival of your business?

FEDERAL TAXES

REGuLATORY BuRDENS

LACk OF AvAILABLE CAPITAL

STATE AND LOCAL TAXES

COST OF EMPLOYEE SALARIES

GROWING NATIONAL DEBT

COST OF EMPLOYEE BENEFITS, NOT INCLuDING HEALTH INSuRANCE

LACk OF quALIFIED WORkERS

COST OF TRAINING WORkERS

FOREIGN COMPETITION

COST OF TECHNOLOGY

NO MAJOR CHALLENGES

COST OF HEALTH INSuRANCE

?

27%

30%

26%

18%

10%

19%

10%

8%

3%

9%

2%

2%

37%

68%

42%

22%

31%

22%

13%

8%

30%

7%

14%

4%

8%

4%

2%

33%

68%

40%

ECONOMIC uNCERTAINTY

DECLINE IN CuSTOMER SPENDING

$

$

$ $$

July 11 Dec. 10


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2011 mid-year economic report - nsba

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