Now is a Great Time to Start Your Small Business — The Tale of Macro Tailwinds

By Dmitri Ponomarev

To launch or not to launch now? Many entrepreneurs are asking this question, especially when looking back at the economic slowdown prompted by 2008 financial crisis. The great news is that now is probably the best time to start your small business in the U.S. — the consumer spending is growing, financing for small businesses is expanding, regulatory and tax environment are very supportive of new small business development and the success rate among new small businesses are near all-time high.

1. Growing Consumer Spending

Personal consumption, the largest component of the U.S. GDP and the most important GDP component for small businesses, is on a steady growth path following the 2008–2009 financial crisis. The support comes mainly from the higher employment and steady growth in disposable personal income — more Americans are at work and earning more income that can be used for personal spending.

Table 1. Real Personal Consumption Expenditures on the Rise — Percent Change from Prior Year

Source: U.S. Department of Commerce, Bureau of Economic Analysis (“BEA”)

2. Small Business Financing Expansion

The financing environment for small businesses is great! Since 2013, the banks are lending more to small businesses. Small business owners have greater financing options with disruptive growth of online lenders and greater participation of other players, such as insurers and credit funds. Plus, the financing costs are historically cheap with interest rates near all-time lows!

Even though in 2008 banks slowed down the lending to small businesses, during the last two to three years, we have seen a steady growth in both the dollar amount and the number of small business loans underwritten by U.S. banks (according to the data published by the Federal Deposit Insurance Corporation, “FDIC”). In fact, from 2013 to 2015 U.S. banks increased their small business loan portfolios by 1.2mm loans (with a total amount $24bn). They are also making it easier for the small businesses to borrow. According to the data published by Biz2Credit, loan approval ratios by the big banks have been steadily increasing in 2015.

Table 2. Banks’ Lending to Small Businesses on the Rise Again — Outstanding Loan Balances

Source: FDIC Call Reports, Schedule RCC-Part II; excludes agricultural loans

Table 3. Banks’ Lending to Small Businesses on the Rise Again — Number of Outstanding Loans

Source: FDIC Call Reports, Schedule RCC-Part II; excludes agricultural loans

In addition to the traditional bank loan sources, there is a fast growing alternative for small businesses — online lending platforms. These opportunities come in different forms, from online balance sheet players, such as OnDeck and Kabage, to market places, such as Fundera and Biz2Credit, and peer-to-peer lending platforms, such as LendingClub and Funding Circle. These alternative lending platforms provided around $6.9bn in financing to businesses in 2015 (according to the Americas Alternative Finance Benchmarking Report prepared by the University of Cambridge and University of Chicago, published in April 2016).

Table 4. Small Business Financing Revolution — Alternative Business Funding Volumes ($bn)

Source: The Americas Alternative Finance Benchmarking Report, University of Cambridge, University of Chicago, April 2016

There is also a growing participation in small business financing among institutional investors, including pension plans, insurance companies, and credit funds. While the data on their role is limited, we will closely monitor opportunities these players present to the small businesses.

In addition to greater financing options, the cost of financing for small businesses is becoming cheaper, as U.S. interest rates are near all-time lows. Below is just one example of historical perspective — a comparison of financing rates on loans guaranteed by the Small Business Administration (“SBA”) for commercial real estate and equipment (“SBA 504 Loan”).

Table 5. Example of Declining Financing Costs — Historical SBA 504 Loan Rates

Source: Small Business Finance,

3. Supportive Regulators

The regulators have been increasingly supportive of small businesses at both Federal and state levels. The introduction of the Small Business Jobs Act in 2010 provides greater opportunities to small businesses to compete for Federal contracts, supports small business exporting opportunities, expands training and counseling support and provides $12bn in tax relief. SBA website gives a good overview of the benefits provided by the Small Business Jobs Act.

Some of us, who are thinking of starting the new small business, are worried about the impact of Affordable Care Act and additional costs to small businesses. The good news is that the requirement kicks in for only those small businesses that have 50 or more full-time equivalent employees (“FTEs”).

At the state level, there is growing support for small businesses as well. For example, Ohio recently introduced a small business income deduction that allows a business owner to deduct 75% of business income from the state adjusted gross income they report on their Ohio personal income tax return. In New York, the state senate has just passed new measures to ease the tax burden for small businesses and farmers.

4. Small Business Stats Show it All

The small business statistics in the U.S. reflect the favorable macro backdrop — more small businesses are opening, fewer small businesses are closing, and “survival” ratios of new small businesses are near al-time high.

According to the Bureau of Labor statistics, there were over 900,000 of new businesses with a single office created between June 2014 and June 2015 — more than in any other annual period! Also, the closures of businesses are on the decline, about 20% lower compared to the “peak” during the last financial crisis.

Table 6. New single office businesses (“establishments”) openings and closures

Source: Bureau of Labor Statistics

And the success rates for new businesses are back to their pre-crisis levels. According to the Bureau of Labor Statistics, one-year survival ratios of new single office businesses are near all-time high!

Table 7. One-Year Survival Ratio of Private Sector Establishments by Opening Year

Source: Bureau of Labor Statistics

The macro factors may be near all-time best for starting small businesses.

We at Main Street Board are focused on helping find right partners and resources in launching and developing new businesses. The rest is up to you!