Third Quarter 2016 Private Capital Access (PCA) Index Show a Mixed Bag for Small to Medium Sized Business Owners when it comes to Working Capital Needs
Working capital financing have been increasing in popularity as funding sources of small business growth in recent years. Is that sufficient to address the needs of small business owners? Working capital still of concern to small business owners, report finds.
According to the third quarter 2016 Private Capital Access (PCA) Index reported by the Pepperdine Graziadio School of Business and Management and Dun & Bradstreet, there is still a need for working capital financing. Based on a survey of 1,888 completed responses received between July 6, 2016 and July 29, 2016, the report found that while businesses have reported increases in credit since 2012, small businesses are still scrambling to secure working capital.
Both small (less than $5 million in revenue) and mid-sized ($5-$100 million in revenue) businesses reported in increase in access to capital of 7.8 percent and an increase in demand for capital of 3.1 percent over last year. Additionally, about 2 percent more businesses reported seeking financing for ‘working capital fluctuations’ over the same time period. Working capital fluctuations are defined as monies that are used in day-to-day operations and are considered to be a standard measure of a company’s economic health and efficiency.
“These small businesses were leaner than they were before the recession, and typically not able to rely on the same liquid assets as larger companies, making access to working capital critical to fuel continued growth”, said Jeff Stibel, Vice Chairman of Dun & Bradstreet.
While there was good new, there were some things that are cause for continued concern. The report showed an increase of 25.7 percent in businesses citing ‘worsening financial conditions’ as a reason for seeking financing. This is 35.2 percent in the third quarter of 2016 vs. 28 percent in the same period of 2015.
A second factor, ‘slow accounts receivable’, an indicator of concerns about cash flow was cited by 27 percent of respondents. This is an increase of 12 percent from 25 percent of respondents in last year’s report. Slow accounts receivable led to additional borrowing needs to keep cash flow going. Both small business (39 percent) and mid-sized businesses (15 percent) stated that this led to slow or no growth in the third quarter of 2016. Also notable was that 8.3 percent of survey respondents anticipated revenue decreases in the current quarter.
Survey Results are a Mixed Bag
Overall, survey results are a mixed bag. On the positive side, increased access to and demand for credit is favorable when companies are assessing short and long-term opportunities and costs. On the downside, “businesses are viewing the future with growing trepidation”, said Dr. Craig R. Everett, Director of the Pepperdine Private Capital Markets project. He continued “Our analysis suggests that businesses appear to be less concerned about short-term grown and profitability than on ensuring future liquidity”.
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