According to the NFIB ( National Federation of Small Business) small business is not spending many dollars on the areas that will bolster the economic recovery. ”Spending seems to be primarily in maintenance mode – if it breaks, replace it,” said Bill Dunkelberg, NFIB’s chief economist.
As reported in the Christian Scientist Monitor The NFIB Index of Small Business Optimism rose slightly in November. However, the index is still at a recession-level reading. Any improvement that we have seen in this index this year is the weakest of all “recovery” periods since 1973, the start of the NFIB surveys.
While some are calling this a weak recovery, I see no evidence that any appreciable recovery is taking place. The NFIB survey bears me out on this.
Employment improvement in small businesses continues to be anemic. The average gain in employment for November was 0.01 workers per firm. Up from 0.0 in October. Small businesses aggressively shed jobs for the first two years of the recession. Those businesses that have survived are operating at lean staffing levels right now.
Those businesses that have survived are beginning to invest in the future. While capital spending has been very low for the past two years, November saw some improvement. About half of all firms reported capital outlays over the past six months. However, spending is not on those things we would expect during a recovery. Most of the expenditures was on things that need to be replaced to maintain operations. Of those who spent money on capital items, 35 percent spent on new equipment, 19 percent acquired vehicles (up three points), and 12 percent improved or expanded facilities. Only 4% acquired new buildings or land for expansion, which is what will signal new growth in the economy.
So what does this mean to you and me. Borrowing is going to become very specific to the existing needs of a business, not their future needs. Which can be a good thing, providing of course that their present financials are strong enough to meet the the stringent underwriting requirements of today’s financial institutions. Many of our clients are looking for marketing dollars to be able to “beef up” for future potential projects, which would mean that the lenders would be looking at projections, which many lenders are not doing as of yet. So borrowing to improve one’s current situation to replace machinery that is obsolete, or needs repair may be an easier loan for a bank to finance.
So continue to watch the economic borrowing pattersn of America to determine where we REALLY stand or sit in this case as to the current recovery. For more information on SBA Loans or commercial Lending contact us.