August 30, 2014

The Janus Month: Looking Back and Looking Forward

Small business research has been pretty thin over the last couple of months but what little there is happens to be focused on a single big question, “How are we doing?” Or, to be more accurate, “How were we doing?”

The State of Small Business

During the course of 2010, staff from the SBA Office of Advocacy spent some of their time working on the office’s annual report to the President on small business for 2009. (Similarly, they’ll spend a nice-sized chunk of this year working on their report for 2010.) The report was just released a couple of days ago.

It’s a bit mind-boggling to try to send yourself back to 2009, when the economy was busily falling to pieces around us. It seems like a million years ago.

Looking Back and Looking Forward

During the first six months of that year, the economy shed about 3.3 million jobs — almost 2 million of them in the first quarter alone. The pace of job losses slowed as the year progressed, but by the time the ball dropped to usher in 2010, we were down 4.3 million jobs.

Small businesses were getting hammered, of course. The report notes that they accounted for 60 percent of net job losses, with the greatest hits taken in the first quarter of 2009.

By the third quarter, small firms were still shedding jobs, but only 33 percent as many as they had lost during the first quarter. That’s not too shabby when you consider that overall job losses, economy-wide, were almost 40 percent of what they had been during the first quarter.

If the employment is not your favorite metric by which to judge the small business sector, perhaps you’re one of those folks who think that small firms will thrive as long as they can borrow money. If so, then you may recall that 2009 wasn’t a good year for that kind of activity, either.

In fact, quite a lot of the small business policy debate we got to listen to was a kind of chicken-and-egg argument about small firm lending.

In this corner, we have the businesses-gotta-borrow crowd, who complained long and loud about banks tightening their lending standards and refusing to lend to small firms. If only we could loosen things up at the banks, these folks theorized, small businesses could borrow what they need and expand their businesses and hire people and save our political careers!

Not so fast, said the folks in the other corner, to whom we will refer as the first-things-first crowd. It doesn’t really matter that the banks aren’t lending because loan demand is down anyway, they said. Small businesses don’t really want to borrow. They can’t afford to borrow because their customers aren’t buying. Think about that before you go standing on the bankers’ necks.

We got to listen to this argument all year lon,g and at no point in time did I hear anybody stop and say, “You’re both right. Nothing you say is going to describe all small firms anyway, so knock it off!”

Another data point that illustrates all that pain is this: The number of nonemployer firms declined in 2008, and Advocacy estimates that the number of employers will also decline for that year. Regarding the year in question, 2009, Advocacy estimates that the number of employer firms fell still further, while nonemployers started to recover their numbers.

We’ll see how accurate those estimates turn out to be. It wouldn’t surprise me to discover that the number of nonemployers increased more than expected. After all, sometimes those vanishing employer firms don’t close, they just revert to nonemployers.

Fast Forward

All things considered, when you think about where we are now, you almost can’t help quoting that old Virginia Slims commercial:  You’ve come a long way, baby.

As usual, the various small business employment indexes disagree with each other — mainly because they measure slightly different things.

The December Intuit Small Business Employment Index shows that firms with fewer than 20 employees created 57,000 new jobs that month. The ADP National Employment Report for December indicated that employment increased by 117,000 at firms with fewer than 50 employees.

Meanwhile, according to the Bureau of Labor Statistics, overall nonfarm payroll employment increased by 103,000 in December.

No matter how you look at it, we’re certainly doing quite a lot better than we were in 2009.

As for how things are going in small business lending land, that is still a matter for debate. The most recent Small Business Economic Trends release from the National Federation of Independent Business (December 2010) indicates that the vast majority (91 percent) of small businesses have no interest in borrowing or their credit needs are already being met.

On the other hand, the Pepperdine Private Capital Markets Study was released earlier this month and it shows a different picture. Only 40 percent of private business owners report having adequate capital for growth. The survey also showed that lenders and investors reject 73 percent of applications based on cash flow and 90 percent of those secured by real estate holdings.

That particular argument rages on, but it is raging much more quietly now that economic growth is back with us.

10 Comments ▼

Dawn R. Rivers


Dawn R. Rivers Dawn R. Rivers, an award-winning small business journalist, regularly reports and analyzes small business policy and research as the publisher of the MicroEnterprise Journal. She also publishes research at the Microbusiness Research Institute and she blogs at The MicroEnterprise Journal Blog.

10 Reactions

  1. It takes them a year to put out their summary report? And this is supposedly information that is guiding policy regarding the small business community? We can’t expect the government to be helpful in the short term when they’re dealing with year old information.

  2. Thanks, Dawn.

    Things are starting to “feel” like they’re getting better.

    One piece of data that you mentioned is a little puzzling, though.

    “The most recent Small Business Economic Trends release from the National Federation of Independent Business (December 2010) indicates that the vast majority (91 percent) of small businesses have no interest in borrowing or their credit needs are already being met.”

    No interest in borrowing…could that mean that there’s no growth being projected?

    Also, is there any data on start-ups that want capital?

    The Franchise King

  3. Ms. Baker:

    You pen a very interesting article. I was not surprised that most job losses occurred early in the fiscal year and that those losses were had in small businesses. After all, small businesses are the pulse of the nation

  4. @Robert
    It’s the nature of the beast, Robert. Generally speaking, there is always a data lag: it takes time to collect data, analyze it and prepare to disseminate it by putting into a digestible format. The most time consuming part is data collection. The State of Small Business report is more about looking back over our shoulder than about knowing where we are and where we need to be going. Besides, policy makers don’t rely of factual information, they generally prefer to depend on ideology instead. :)

    @Joel
    I think that small businesses will be hesitant to borrow money for as long as consumers keep sitting on their cash. Nobody in their right mind is going to want to take on debt if they are in a situation in which they have questions about their ability to repay it. If anything, this speaks to the lack of optimism that is out there — very unusual for small business owners! They are feeling quite cautious.

    I don’t know of any current research on loan demand among startups. According to research from Advocacy that is several years old, the average startup cost for a small business is $6,000. Meanwhile, our President has gotten his act together and taken it on the road, looking for high-impact startups in promising “industries of tomorrow”. Unfortunately, as we both know, predicting the “next big thing” is a bit of a crap-shoot.

    @Neal

    I assume those are rhetorical questions? ;-)

  5. Well the good news is that the situation is now getting better, I guess everyone felt the economic downturn during the past few years and almost everyone suffered some way or the other. However, I still feel that the information on people not wanting to borrow seems unreal, till small business’s run, people would need funds to start off. Interesting statistics though, thanks for sharing!

    Riya Sam
    Training for Entrepreneurs.com

  6. Dawn, Have you looked at the Purchasing Managers’ Index? The number was 60.8 in January, 58.3 in January, 2010 and 35.7 in January 2009.

  7. @Riya
    What you say is true but most small businesses are not startups and, according to the numbers, many of them look to either internal sources of financing (reinvesting profits into the business) or they turn to friends & family (where that is a viable option). And there are any number of businesses with really quite minimal startup costs, too.

    @Martin
    Haven’t looked at that one but, from what you say, it seems to be another indicator that things are (slowly) getting better. I do know that the Credit Managers Index (released by the National Association of Credit Managers) is indicating that a more sustained recovery is coming our way, too. One particularly encouraging component of this index is the amount of credit extended, which has jumped from 61.7 to 64.8 between December 2010 and January 2011, and that in spite of a post-holiday slowdown in sales.

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