Small business at a crossroads

June 7, 2011

– Jeff Stibel is the chairman and CEO of small business credit rating agency Dun & Bradstreet Credibility Corp. The views expressed are his own. –

What is a small business owner to make of the headlines?

Right now, leading indicators – like lending, hiring and optimism – paint a conflicting picture of the direction of the country’s small business sector. It’s no wonder we’d be confused. It seems one index rises, while another falls.

Take, for example, small business optimism.  There’s no doubt we’ve come a long way from where we were at the bottom of the recession. But, the leading optimism index, calculated by the National Federation of Independent Business (NFIB), still looks like a seismometer in the days following an earthquake.

For the first two months of 2011, the numbers looked promising; optimism didn’t just rise slightly – it lunged forward. On a scale with 100 being the best and 0 being the worst, the index jumped from 92.6 in December 2010 to 94.5 by February this year. It’s a substantial gain from where we were at the bottom of the recession, when the NFIB reported numbers in the low 80s – 81.0 being the lowest.

But just when things looked up, numbers from March, April and May showed a drop – back more than 3 points – all but erasing recent gains and dropping to a level not seen since late last summer.

At the same time, lending statistics led us to believe something otherwise – and more encouraging – that small business health is rebounding. In fact, the Wall Street Journal recently reported that a Capital One survey showed 85 percent of small business owners felt they could access the loans they need – an increase of 15 percent from the year prior.

But even with positive news from the Capital One survey, lingering trepidation about the state of the economy remains. And as the WSJ article pointed out, the Capital One report could be a rosy estimation, especially when compared with a similar NFIB report from December that shows many small business owners continue to lack access to credit – up to 26 percent of them.

The irony in our recovery is that a good portion of the government stimulus was aimed at small businesses, including major tax incentives to promote investing and banking regulations to promote lending.  But many analysts think institutions still aren’t lending enough to small businesses, even though, in many cases, banks have increased available loans. As a result, it’s a struggle for small businesses to increase hiring, expand their inventory, innovate and grow.

Compounding the problem, many businesses no longer appear creditworthy as a result of the recession, which drove down revenues and profits. Bankers have also increased the level of scrutiny they apply in making lending decisions, making it harder to get a loan.

Right now, we’re at a crossroads. And the question we need to answer is: What it will take to make a small business recovery come full-circle, so that leading indices move together in a positive direction?

Ultimately, lending must flow freely to small business, and much more is needed to make this a reality.  While continued low interest rates make credit cheap and available for our largest businesses to get loans, credit remains out of reach for many small businesses.  Banks and lending institutions must recognize that their own long-term health is tied to the overall economy, not merely its largest players, and that a sustained recovery ultimately depends upon the recovery of small businesses.

It’s also vital that small business owners continue to proactively build their creditworthiness.  Many of them are already rebuilding their credit and reaching out to trade providers and banks to re-establish relationships. We have seen a dramatic increase in businesses that are purchasing credit-building products at Dun & Bradstreet Credibility Corp and many are starting to think about credibility and trust. There’s a recognition that creditworthiness is directly tied to a business’ ability to thrive.

The key now is for small businesses – and those that support them – to maintain the momentum cultivated at the start of the year. It’s something we need to keep up, even if the leading small business indicators don’t always paint a clear picture of where we’re headed.

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