Report: Access to Capital Improving for Small Businesses
Results from the latest Pepperdine Private Capital Access (PCA) Index quarterly report show access to capital for businesses of all sizes increased in Q1 2014 from the previous quarter and is the highest since the inception of the report in Q2 2012.
The quarterly index by Pepperdine University’s Graziadio School of Business and Management together with Dun & Bradstreet Credibility measures the accessibility and demand for capital among the nation’s small businesses, as well as the transparency and efficiency of private financing markets.
The PCA Index number was 28.3 in Q1 2014, up 1.9 percent from 27.8 in Q4 2013. For comparison, the lowest PCA Index number was 25.6 in Q1 2013. A value of less than 50 for an Index represents a low level of access or demand. Thus, while access to capital remains limited, this latest increase represents a solid improvement.
Lower middle market companies (businesses with revenue between $5M – $100M) saw the most improvement in accessing capital. The Index value for this segment rose to 36.7, which is an 8.9% increase from the Q4 2013 Index value of 33.7. Small businesses (with revenue under $5M) also saw improvement as the Index value for this segment rose to 27.1, a 1.8% increase from the Q4 2013 Index value of 26.6.
“While fewer companies are seeking capital, those that do are appearing to have an easier time securing funds,” said Dr. Craig Everett, director of the Pepperdine Private Capital Markets Project. “The sign of a truly healthy economy would be large numbers of businesses raising growth capital; however, our Index shows progress and indicates that capital providers are beginning to loosen their purse strings.”
The survey results also showed that approximately 55% of businesses who attempted to secure financing applied for a bank loan in the last three months. Of those, 44% were successful in securing financing through a bank. When broken out by revenue size, 39% of businesses with revenue under $5M and 81.1% of businesses with revenue between $5M – $100M were successful in securing bank loans. On the other hand, 26.5% of those who attempted to secure financing applied for an asset-based loan and only 28% of them were successful.
“Although we are seeing a promising trend of businesses getting more access to capital, we clearly see that larger businesses are benefitting most,” said Jeffrey Stibel, chairman and chief executive officer, Dun & Bradstreet Credibility. “Smaller businesses, especially those with revenues less than $500,000, which we consider micro-businesses, continue to have a relatively harder time getting access to the financing they need on favorable terms. There’s still a long way to go for America’s smaller businesses.”
To read the Pepperdine report, click here.