What Will It Take to Get You to Start Hiring Again?

Sure there’s lot of political talk about job creation, but let’s ignore what the politicians have to say. Instead, I want to look at what it would really take for small businesses, long touted as the “engine of job growth,” to start hiring again.

Actually small businesses do want to hire. In fact, 40.7 percent of those surveyed in an ongoing study of privately owned businesses conducted by the Pepperdine Private Capital Markets Project and Dun & Bradstreet Credibility Corp are planning to do so in the next six months, compared to 38.1% who have no plans to hire and 21.2% who are uncertain.

But access to capital is a huge stumbling block for the companies in the survey, all of which had annual sales under $5 million. Asked what policies were most likely to encourage them to hire in 2012, “increased access to capital” was cited by (34.8 percent), with tax incentives ranking second (23.2 percent) and regulatory reform third (18.3 percent).

now hiring

Where would small businesses like to get capital? Bank loans were the preferred financing source for the majority (70.7 percent). Angel capital, the second most desirable funding option on the list, fell far short, cited by just 35.7 percent of survey respondents. Private equity (28.1 percent) and venture capital (27.2 percent) were close behind.

However, of those small businesses that had actually approached banks for loans in the past 12 months, only 44.5% obtained a loan. Whether or not they were successful, the study showed that the average business owner contacted 2.2 banks and spent 16 to 24 hours of time on the loan process.

In announcing the results, John Paglia, lead researcher of the Pepperdine Private Capital Markets Project and associate professor of finance at Pepperdine University’s Graziadio School of Business and Management, suggests that small businesses may be losing their incentive to pursue bank loans.

“Many businesses are now questioning whether contacting banks for credit is worth the time invested. Taking 16-24 hours away from ‘minding the store’ to pursue a loan can be extremely detrimental to any small business, especially when the odds are not in their favor,” Paglia says.

Personally, I realize that 16 to 24 hours is a substantial time investment, but if the result could potentially be a capital infusion that saves your business or helps it grow exponentially, I’d consider that a small price to pay. I’d also note that getting capital from VCs, private investors or angels is likely to take substantially longer than 16 to 24 hours.

But I also see Paglia’s point. Small businesses are losing faith. They doubt going through the normal channels will get them anywhere. And if small businesses can’t count on finding capital, they won’t have the confidence (or money) to hire.

Any entrepreneur who had to lay off staff in the Great Recession most certainly doesn’t want to do it again.  As business owners, letting go of a team member hurts, so hiring isn’t a decision we make lightly.


Rieva Lesonsky Rieva Lesonsky is a Columnist for Small Business Trends covering employment, retail trends and women in business. She is CEO of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Visit her blog, SmallBizDaily, to get the scoop on business trends and free TrendCast reports.

7 Reactions
  1. With the lending spigot pretty much closed right now, especially for small businesses that really need the capital, the economic environment does not look good. I don’t see small business owners adding new employees unless they absolutely have too. Times are still too uncertain to take a chance like that. It’s not like you can hire and fire people whenever things slow down and speed up.

  2. Great post on the core issues – financing and regulatory reform.

    Meanwhile, Dodd-Frank added 100+ new regulations for small business owners to swim upstream against as banks get even more skittish to lend. More banking regulations are a good public show, but they’re only adding to the pressure from the federal regulators banks have to not make loans.

  3. There is only one thing that make me start hiring again, and that is a reduction in employment related legislation. The exposure and risk of litigation from employees is probably my top concern. Until then, I will whereever possible use contractors rather than hiring.

  4. LOL – Sandra, you’re going to have a long wait. Just heard today the government is adding an average of 10 new regulations every week. The State Dept. added just one on July 15 that immediately put hundreds of small businesses and thousands of employees out of work with one simple regulation – http://chuckb.me/x4Z.

    Don’t hold your breath. 🙂

  5. I have owned a small business for 25 years and have never been this slow. My customers are afraid to spend because they dont know if they are going to have jobs. Some have left the state for work. If big business doesent invest in keeping people in jobs (for instance ; Auto nation laided off half its middle management and workers,didnt give raises and makes everyone do the work of 3 people, cuts benifits ect. and they are making tons of profit)then all the small businesses have no business!If government keeps laying off policemen and state employees then we have lost customers. I cant hire more people until the FAT CATS who already make too much let go of some profits and pay more taxes to get our county going again.