Up by the bootstraps: Survey finds most U.S. SMBs finance themselves Photo courtesy of VDOT.

Up by the bootstraps: Survey finds most U.S. SMBs finance themselves

An overwhelming majority of small to medium business owners in the U.S. self-finance their own businesses, survey finds, largely by tapping personal cash flows.

According to a new survey from BlueVine, an overwhelming majority of small to medium business (SMB) owners in the U.S. self-finance their own businesses

The online capital provider polled 692 SMB owners working in various industries throughout the U.S and found that 83% have “bootstrapped” their companies and built them using their own personal finances. By contrast, only 15% of SMB owners have used a loan to fill cash flow gaps. BlueVine’s survey also found that 60% of SMB owners used personal funds to fill cash flow gaps, 48% went without pay, and 17% delayed major expenses such as payroll or rent.

“Despite the amount of capital available today, it’s clear that cash flow challenges continue to be a significant growth and operational hurdle for the vast majority of business owners,” said Eyal Lifshitz, founder and CEO of BlueVine, in a statement. “The findings of this survey indicate that small business owners in America are in need of accessible, external funding options, and continue to be self-sustaining and reliant, largely out of necessity.”

Some other findings from BlueVine’s poll:

  • Three-quarters (75%) of SMB owners report that their primary source of funding comes from their own personal finances, followed by banks (16%) and family/friends (6 %).
  • Only one in three SMB owners applied for a personal loan to finance their business.
  • Of those small business owners who have applied for a business loan (34%), some 40% reported having a bad experience.
  • More than half (55%) of SMB owners manage their finances on their own.
  • About 33% percent of SMB owners said taxes were the most surprising expense they did not anticipate when starting a business.
  • Another 28% said the cost of technology (new software, HR software, payroll, etc.) was the most surprising expense they encountered.
  • Nearly 50% of SMB owners said that among a list of external factors, government regulation has the greatest impact on their business.

The strains of operating SMBs in such fashion may also be contributing to a decrease in optimism among them, according to a separate survey.

After reaching a seven-year high in January, small business owners are feeling less optimistic today than they were a year ago, according to the most recent Wells Fargo/Gallup Small Business Index.

The poll’s index score dipped from 59 in August to 54 in November, representing the lowest score since July 2014. It’s also the third quarter in a row that the score has dropped after starting the year at 71.

“This has been an unusually slow economic recovery for everyone, and small business owners are certainly feeling that,” noted Mark Vitner, managing director and senior economist for Wells Fargo Securities, in a statement.

“With the economy growing as slowly as it has been, it’s been difficult for many business owners to increase their sales, and this has been particularly burdensome for firms who have seen expenses rise, including healthcare costs,” he added. “As a result, many [small businesses] have been reluctant to invest in equipment, expand their operations and hire staff, even as business owners in general have seen gradual improvement in their financial situation and cash flow over the last few years.”

Company revenue is a measure that changed significantly since January, Wells Fargo noted, with just 39% of small business owners reported that their company revenues increased a little or lot in the last 12 months – a 10 percentage point drop from the first-quarter survey.

Looking ahead, only 47% of small business owners expect their revenues to increase in the next 12 months, down from 55% at the start of the year.

Most other Index measures had small declines or saw no improvements in the fourth-quarter survey, Vitner pointed out, including:

  • Financial situation – When asked about their financial situation, 65% of small business owners rate it as very or somewhat good, essentially unchanged from a year ago (64%) and the same score as the previous three quarters.
  • Capital spending – Some 26% of small business owners said their company increased the amount of money allocated for capital spending in the past 12 months, essentially unchanged from 27% a year ago.
  • Hiring trends – About 17% of small business owners increased the number of jobs at their company in the last 12 months, essentially the same as what business owners reported a year ago (18%). When asked about hiring plans in the next 12 months, about a quarter (26%) said they plan to increase the number of jobs at their company, unchanged from a year ago.

When asked to identify the most important challenge they face, business owners cited several concerns, with government regulations (13%) at the highest percentage since the question was first asked in the second quarter of 2013.

That was followed by attracting customers and finding new business (11%), then hiring and retaining quality staff (10%). These three challenges have been consistently reported as the top concerns of small business owners since early 2013, Wells Fargo noted.

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