Capital constraints deter job creation: poll


By Ann Meyer

Fewer than half of small business owners who seek bank loans receive them, according to research from Pepperdine University.
John Paglia, a professor at Pepperdine University, says a lack of capital is keeping small businesses from adding workers.

With President Barack Obama expected to announce a jobs act Thursday night, experts said what small businesses want most is access to capital.

Without capital, small businesses often are constrained from adding workers. And after business owners are turned down for bank loans or other types of financing, they often are reluctant to try again, prolonging the situation.

Time-consuming loan applications

Many businesses are now questioning whether contacting banks for credit is worth the time invested. Taking 16 to 24 hours away from ˜minding the store to pursue a loan can be extremely detrimental to any small business, especially when the odds are not in their favor, John Paglia,  associate professor of finance at Pepperdine University’s Graziadio School of Business, said in a news release announcing preliminary findings from the Pepperdine Private Capital Markets Project.

A poll conducted for the project indicates 44.5 percent of 1,667 small businesses that sought bank loans during the past 12 months were  successful. On average, the business owners reported contacting two or more banks and spending 16 to 24 hours in the process, according to Pepperdine.

If we can get credit flowing and hiring picks up, actions such as incentives that support the pursuit of advanced degrees and workforce retraining would set off further creation of much needed, higher-wage jobs, Paglia said in the release.

Business owners’ confidence lagging

An increase in available capital and a reduction in taxes or regulations also could boost business owners’ sentiment, which has been lagging.   Business owners see the economy as stagnant and are neutral or pessimistic about the overall business environment, according to Newtek Business Services’ SB Authority Market Sentiment Survey of about 1,100 small business owners. About seven out of 10 small business owners do not  plan to hire in the next 12 months, the August poll suggests.

But Obama hopes to reverse the pessimism by announcing the American Jobs Act, legislation containing several measures designed to encourage companies to add workers. The plan, which is expected to go to Congress next week, reportedly  would pump about $300 billion into the economy through cuts in the payroll tax and new government spending on infrastructure development to stimulate hiring, the media reported this week.

While the plan might ease some small business owners’ uncertainty about the economy,  the policy option that most small business owners say would   best create jobs is increased access to capital and particularly access to bank loans, according to the Pepperdine report. Tax cuts and regulatory reform were also cited as preferences.

The report indicates 71 percent of small business owners would be willing to take out a bank loan, compared with 36 percent who would pursue angel financing, 28 percent who would seek private equity and 27 percent who would be willing to accept venture capital.

Red tape squelching investment

Small business owners are behaving cautiously because they can t predict their tax obligations, their health care premiums or their regulatory expenses, said Kim Clarke Maisch, the National Federation of Independent Business’ state director for Illinois. Maisch is among those calling for less regulatory red tape, which the Illinois NFIB chapter says is squelching small business owners’ plans for new investment, growth and jobs.

Small business is the key to our economy and small business owners are most affected by income tax rates and regulations, Maisch said in a statement.   The president needs to assure small business owners Thursday night that he understands them a little better than his policies indicate.

More than half of Illinois employees in Illinois work for a small business, and three-quarters of small business owners pay their taxes as individual filers, the NFIB reports.

Small businesses should be a top consideration as the president and other legislators seek to jump-start job creation, Paglia said. Establishing market confidence, improving access to capital and improving regulatory and tax structures are the most direct route to end the Great Recession and spark the Great Recovery, he said.