Small businesses are expressing optimism about their future prospects and showing a strong desire for growth, according to a new survey conducted by American Banker. The research, set to be released on October 31st, gathered responses from 300 small business owners and revealed some interesting insights into the current state of small business confidence and financial health.
The survey found that a significant majority of small businesses, 81%, reported being profitable. Even more encouragingly, 88% of respondents indicated feeling very or somewhat optimistic about their company’s future. This positive outlook aligns closely with findings from a separate Bank of America survey, which showed 78% of small business owners anticipating increased revenues and 63% planning to expand.
However, the American Banker survey also uncovered some financial challenges facing small businesses. Approximately one in four respondents reported experiencing cash or capital constraints. This issue was particularly pronounced among smaller firms with 2-9 employees, where more than a third indicated cash flow concerns. While the problem was less severe for larger small businesses, it remained a significant factor across the board, with an average of 27% of all respondents citing such difficulties.
Adam Stockton, head of retail deposits at the bank data firm Curinos, noted that this growing confidence is translating into increased demand for credit. “We’ve seen an increase in applications across most small business loan and line products,” Stockton stated, attributing the trend partly to lower inflation and falling interest rates.
The cash constraints reported by small business owners may be partially explained by credit demand outpacing supply. Stockton observed that while businesses are eager to act on their optimism, banks are taking a more conservative approach to lending. This situation could present opportunities for financial institutions willing to expand their lending activities, particularly in lower-risk segments or for those with a more bullish economic outlook.
The survey also revealed high levels of trust between small businesses and their primary banking partners. Retail banks dominated these primary relationships, controlling 68% of them. However, most businesses maintain relationships with additional lenders, including fintechs and credit unions, leaving room for these institutions to potentially capture market share from traditional banks.
Stockton emphasized the importance of being the first to provide credit to small businesses, noting the strong loyalty that often develops from such relationships. “There is tremendous loyalty in most businesses to the institution that first gives” their initial loan, he said, adding that this initial credit can be crucial for a business’s survival and growth.
The research indicated a particular surge in applications for Small Business Administration (SBA) loans. The SBA’s 2024 fiscal year, which ended September 30th, saw a 13% increase in approved lending dollars through its flagship 7(a) loan guarantee program compared to fiscal 2023. The number of individual 7(a) loans approved rose by 22% to over 70,000.
These findings suggest a complex landscape for small businesses, characterized by growing optimism and expansion plans but tempered by ongoing financial challenges. For banks and other lenders, this environment may present both opportunities and risks as they navigate the evolving needs of the small business sector.