Owners Feel Cash Flow Strain But Express More Optimism That Business Will Improve Before Year-End

September 2007

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Economic confidence among small business owners fell to its lowest point in a year in September marked mainly by increasing cash flow issues, according to the Discover^® Small Business Watch^SM. At 99.2, the Watch dipped for the first time below its baseline 100 mark, which was established in August 2006. 

However, owners’ expectations that economic conditions for their businesses will improve over the next six months are higher, and they are planning to increase hiring and spend more on business development.

“For the last few months, we have seen a downward trend in small business owners’ confidence in the economy,” said Sastry Rachakonda, director of Discover's business credit card. “Cash flow constraints are a very tangible sign that can move the index. On the other hand, business owners’ optimism may be a sign that they feel like things will be turning around.”

The 1,000 business owners polled in September showed a 4-percentage-point rise in their optimism that economic conditions for their businesses will get better over the next six months. A third of them, 36 percent, are planning to increase spending on business development.

Learn more about the research methodology for the Small Business Watch.

September Key Findings

• 46 percent of small business owners said that they have experienced cash flow issues in the last 90 days, an increase over last month's 41 percent and July’s 35 percent.
  
• 40 percent of small business owners feel that economic conditions for their businesses are getting better, an increase over the 36 percent who said the same in August.
  
• The percentage of business owners who say they will spend more on business development in the next six months rose from 34 percent in August to 36 percent in September.
• 15 percent of small business owners said that they would likely hire more workers over the next few months, representing an increase from August’s 12 percent.
  

Business Owner Poll: 1 in 3 Depend on Credit to Run Their Operations; Many Facing Delayed Payments

• Nearly one third of small business owners said that they extend credit to their customers, and of those, 64 percent said that their customers who use credit had delayed a payment or asked to delay a payment in the past three months.
  
  “With their customers asking to delay payments, it makes sense that many small business owners are feeling the tightening of cash flow more in September,” Rachakonda said.
  
  
•  The Watch also found that 30 percent of entrepreneurs borrowed money to start their businesses. Of the borrowers, 36 percent used Small Business Administration bank loans or other bank loan, 35 percent sought funds from friends and family, and 19 percent tapped a home equity loan.
  
  “While many used bank loans to seed their small businesses, 60 percent of small business owners said that banks do only a fair to poor job of helping them get started,” Rachakonda said.

General Poll: No Evidence of Credit Climate Hurting Entrepreneurial Spirit

• 29 percent of the 4,000 consumers polled in September said they would like to start their own businesses someday, with 35 percent of those future entrepreneurs saying they were very likely or somewhat likely do so in the next 12 months.  
• People planning to launch enterprises in the next 12 months also were confident that they would be able to borrow the necessary funds; 61 percent said that it was very likely or somewhat likely that they would be able to borrow the funds, while 33 percent said that it was not very or not at all likely they would be able to borrow; 6 percent were not sure if they would be able to borrow.

The Discover Small Business Watch is a monthly index of the economic confidence of the nation's 22 million businesses with 5 or fewer employees. Learn about our research methodology.