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Survey: Confidence Level of Small and Independent Business Owners Close to 30 Year Lows

Tuesday, 18 Oct 2011 | 2:10 PM ET

Small businesses are not likely to experience robust growth anytime soon, according to the latest findings of the SB Authority Index.

Newtek Business Services, which created and maintains the Index, is a non-bank small business lender, lending over $100 million as principal to small businesses as well as processing over $3.5 billin electronic payments for their customers in addition to other services. Comparing the last four and a half years, there is a 0.83 correlation between the Index and GDP. I spoke with Barry Sloan, CEO of Newtek Business Services on their latest findings.

LL: What aspects in the small business economy are you seeing uptrends?

BS: We have tracked our index going back to the fourth quarter of 2007. The economy hit its low point according to GDP information in the first quarter of 2008. The up-trends that we have seen since the economy bottomed have been short term interest rates declining, increases in small business lending off of a zero base, and consumer spending beginning to recover.

LL: What indicators do you look at when formulating the index?

BS: We look at eight leading indicators and movement and health of the economy from a variety sources:

1. ADP National Employment Report

2. Russell Microcap Segment of the U.S. Equity Market

3. Prime Rate

4. Retail Sales

5. Newtek Merchant Processing

6. Approved SBA Loan Volume

7. GLS Estimated Small Business Loan Default Rate

8. State of Delaware—New Business Formations

LL: What headwinds are hampering growth?

BS: The headwinds that are hampering growth are business confidence levels are neutral to negative despite the fact that there is some small business lending, it’s not at a significant enough level to grow the economy. New business formations are at historic lows.

LL: Let's talk lending. What is the state of lending?

BS: Most banks are being pressured by regulators to increase loan loss reserves and shrink their balance sheets, particularly at the community bank level. Government guaranteed SBA 7A lending has picked up some of the slack for the lack of conventional commercial bank lending but is still not enough.

LL: How much in lending is needed to see a dramatic business turnaround?

BS: Using federal reserves statistics, increases of 5 to 10 percent growth year-over-year are the minimal amounts of lending required to see any upward movement.

LL: Business confidence has not been high in years. How would you characterize it now?

BS: The confidence level of small and independent business owners is probably close to 30 year lows as the following confluence of events has cast a cloud on the future:

  • Government regulations are increasing and show no signs of letting up · The future of ObamaCare and healthcare is dampening cash flow expectations
  • The looming threat of higher taxes is dampening cash flow expectations · The lack of capital both equity and debt are still at insufficient levels for growth

LL: Based on the significant impact small businesses have on the economy. Looking at the index results. Is the US economy still on its tepid growth track?

BS: Yes, the US economy, which is still the strongest economy in the world, is still on track for tepid growth as long as the Federal Reserve keeps rates low and the dollar does not get further devalued.

LL: Do you fear the Index trend can go negative?

BS: It could, but we do not see the trend going negative as of right now. We are bumping along which is consistent with GDP growth.

LL: What are you hearing about hiring?

BS: Business will continue to be reluctant to hire because of all the head winds. From where we sit, the most important thing the country has to do is allocate resources better. The money has to apply a multiplier effect.

For example, Obama gave $35 billion for teachers, firemen, policemen and public workers which is great, but at the end of the day the money is gone. America's biggest problem is a resource problem and the expenditures for GDP are consumption. you get nothing else from it. For a healthy economy we want small companies to grow over time, buy real estate, hire workers. Until we see that, its going to be hard to turn things around. Remember, small businesses create 75 percent of the new jobs in this country.

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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."

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