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Small Businesses Gaining Interest in Loans, Pepperdine Survey Finds

What's Hot in Small Business – Chris Crum
Chris Crum writes for Small Business Resources about what's new for small business. Chris was a featured writer with the iEntry Network of B2B Publications where hundreds of publications linked to his articles including the Wall Street Journal, USA Today, LA Times and the New York Times.

Small Businesses Gaining Interest in Loans, Pepperdine Survey Finds

Small Businesses Gaining Interest in Loans, Pepperdine Survey Finds

Pepperdine University's Graziadio School of Business and Management recently released its quarterly PCA Index report, which is designed to gauge small and medium-sized business demand for financing as well as their levels of accessibility of private capital. The report is based on 1,341 responses collected October 31 – November 15, 2017 from businesses with revenue up to $100 million.

The report indicates that while some are having trouble gaining access to the capital they seek, interest in borrowing is on the rise. The index measuring demand for financing increased by 3.6 percent from the prior quarter. A different index measuring business' ability to get financing 0.2 percent - slower growth, but growth nonetheless.

The findings would seem to suggest that some small business owners may be feeling more confident about their ability to take on debt. The data indicates that a lot of these businesses are have sought financing as a means of acquiring another business. This is the case for 44 percent of small businesses and 47 percent of mid-sized businesses.

Another noteworthy finding is that nearly half (46 percent) of small businesses and as many as 70 percent of medium-sized businesses cited solid cash flow as reason for not seeking financing.

And speaking of acquisitions, the school also put out its Market Pulse report, which provides some other interesting insights. For example, over half (55 percent) expect a shrinking labor market will cause more business owners to expand through acquisition.

The report, which looked at Q3, found an increase in activity by private equity and strategic corporate buyers compared to the previous quarter. This, the school says, indicates a strong demand for add-on acquisitions.

It also found that based on survey responses, 90 percent of deals in the $5 million - $50 million range were acquisition or add-on growth opportunities. That is compared to 60 percent in the prior quarter.

Close to half (49 percent) of those polled for this survey indicated that the potential for rising interest rates has buyers and sellers both pursuing "aggressive timelines," in hopes that deals can be closed in a more timely fashion while financing is less expensive. At the same time, 81 percent suggest that uncertainty over President Trump’s tax plan isn't having much of an impact on M&A activity for small businesses.

“Tax uncertainty has hit the larger M&A market, as U.S.-targeted deals fell to their lowest rate since 2013,” said Craig Everett, PhD, Director of the Pepperdine Private Capital Markets Project. “Despite this uncertainty, small business sellers are maintaining a ‘business as usual’ approach when it comes to M&A tax issues. So far President Trump’s efforts to reduce regulatory tax burdens have only provided clarity around taxes that support family succession plans. This is important for family-owned businesses and I expect additional tax reform will increase buyer demand and strengthen the M&A market.”

Seller market sentiment reached an all-time high in the $1 million -$2 million sector since the beginning of the survey, all the way back in 2012.