union bank 2011 small business survey

2011 Union Bank California Small Business Economic Survey

Annual survey conducted by Union Bank shows small businessowners optimistic on hiring, profits and capital spending

At Union Bank, our ability to support small businesses depends on understanding what

small business owners do, think, want and need. To that end, since 2000, Union Bank

has conducted an annual survey to gain insight into the economic challenges of running

a small business and to capture small business owners’ outlook for the new year.

What is the purpose of the survey?

Union Bank cares about small businesses, and we want to know what’s affecting them

and what their opinions are. The information collected is used to help gain insight into

potential problem areas that small business owners face and to better understand how

Union Bank can help solve those problems.

Who is included in the survey?

Approximately 3,000 small business owners throughout the state of California were

surveyed. The businesses, as defined for the survey, must have $5 million or less in

annual sales, must have been in existence for two full years, and must employ at least

one non-owner employee. Business owners surveyed employed an average of 13

people and have been in business an average of 16 years.

How is the survey conducted?

Bankers with small business contact conducted face-to-face interviews with a mix of

Union Bank customers and non-customers.

How often does this survey take place?

For eleven consecutive years Union Bank has conducted the California Small Business

Economic Survey. In 2011, the survey was conducted between January 10, 2011 and

January 28, 2011.

What types of questions are asked in the survey?

The survey gathers information on previous years’ sales, profit perspective, staffing

levels, cutbacks, challenges and advantages of running a business in California, and

recovery expectations.

Small business owners in California and Washington State have high hopes for 2011, according to Union Bank’s 11th annual Small Business

Economic Survey. Buoyed by higher sales and fewer layoffs, 60% of business owners in California and 61% in Washington are optimistic that 2011 will be better than 2010. In California, that’s up nine percentage points from 2010 and 26 percentage points from 2009.

“After years of belt-tightening, careful spending and trying to hold the line on staffing levels, small business owners are growing weary of just ‘hanging on,’ and they’re ready to return to profitability,” says Executive Vice President Todd Hollander, head of Union Bank’s Business Banking

Union Bank Small Business Economic Survey | 1

Group. “The profitability point is the most positive development from our survey, and it proves again why small businesses are truly the backbone of the U.S. economy.”

This year’s survey — the largest to date— found sales continued to climb in 2010 for many of the business owners surveyed in California: 42% reported increases last year, up 50% from 2009. Fewer California businesses laid off employees for financial reasons in 2010 than in 2009 (17% vs. 24%), while 96% don’t expect layoffs in 2011. In Washington, where the survey was conducted for the first time, 97% don’t expect layoffs this year, compared to 2010 when 25% laid off workers.

OPTIMISM REMAINS TEMPEREDDespite the improving outlook, the uncertainty of the past few years is causing some businesses to restrain their hiring and spending. Only 24% of business owners in both states plan to increase staffing levels this year, but 70% expect to hold these levels steady. Many are being similarly cautious about capital expenditures. While around one-quarter of respondents plan to increase capital spending this year, most California and Washington business owners (63% and 65%, respectively) expect to keep it at last year’s levels.

“The good news is that optimism continues to edge up in terms of profitability,

hiring and capital expenditures,”

Small Businesses

Expect Return to ProfitabilityCompanies are starting to add staff and spend more, Union Bank’s 11th annual economic survey finds

BUSINESS GROWTH AND OUTLOOK

RESPONDENTS / REGION LOS ANGELES SAN DIEGO ORANGE RIVERSIDE WASHINGTON COUNTY COUNTY COUNTY COUNTY STATE

Optimistic and expect profits to 61% 64% 63% 65% 61%increase in 2011

Reported lower sales in 2010 than in 2009 32% 31% 30% 39% 38%

Reported no change in pricing for 42% 40% 45% 50% 41%products/services rendered in 2010

Raised some prices and lowered others for 27% 26% 28% 17% 21%products/services rendered in 2010

Felt the state’s budget crisis had a 38% 33% 31% 29% 31%moderate impact on their business

2 | Union Bank Smal l Bus iness Economic Sur vey

Hollander says. “Many small business owners are waiting to see what 2011 brings before concentrating on growth.”

BANKS ARE LENDINGAccess to capital continues to be available to many of those who need it. Nearly half (48%) of California business owners who applied for credit received the amount they requested, while the number rose

to 63% in Washington.

The Small Business Jobs Act of 2010—legislation providing small banks with $30 billion to encourage lending to small businesses, $12 billion in tax incentives and expanded Small Business Administration (SBA) loan programs—may also help improve access to financing this year. Still, many business owners said they were not interested in seeking credit this year. Only 25% of respondents in

California and 15% in Washington said

they were “strongly motivated” or “somewhat motivated” to apply for credit in 2011.

“For many small business owners who have struggled with debt over the past few years, or who may think that banks aren’t lending, it may take some time to return to a mindset of applying for loans,” says Senior Vice President Heather Endresen, manager of Union Bank’s SBA

government lending. “Union Bank is

JOB GROWTH AND LAYOFFS


Plan to increase staffing levels in 2011 24% 27% 28% 29% 24%

Anticipate maintaining same 72% 69% 65% 65% 70%staffing levels in 2011

Had to do layoffs for economic 14% 16% 19% 18% 25%reasons in 2010

Do not anticipate layoffs in 2011 97% 96% 97% 96% 97%

COST CONTROL AND CAPITAL EXPENDITURE PLANS


Plan to maintain capital expenditures to 62% 60% 65% 59% 65%that of 2010

Reduced debt in 2010 39% 45% 33% 46% 43

Cut operating costs in 2010 50% 52% 55% 60% 62%

Negotiated with vendors for lower costs 42% 47% 44% 53% 43%of goods/services in 2010

Anticipate continued vendor negotiations 39% 38% 36% 53% 41% for lower costs of goods/services throughout 2011

COST CONTROL ACCESS TO CREDIT IN 2010


Applied for loan/access to credit 27% 21% 23% 20% 35%

Approved for full amount 49% 48% 40% 23% 63%

Approved for less than requested amount 14% 11% 22% 39% 6% Denied 38% 41% 39% 39% 31%

Of those denied, unable to find 69% 73% 70% 80% 78%alternate financing

Somewhat or strongly motivated to apply 33% 18% 25% 23% 16% for credit, due to Small Business Jobs Act

Union Bank Small Business Economic Survey | 3

actively lending to small businesses, and we are proud to have been ranked among the top two banks statewide in the number of loans under $1 million made to businesses in 2009-2010.”1

BUSINESSES WANT TAX RELIEFAfter cutting operating costs, reducing debt and negotiating lower costs with vendors last year, business owners in California and Washington said they want to see the government ease their burden by focusing on tax cuts for small businesses,

temporary tax incentives for investing in jobs and lower health care costs in 2011.

California and Washington business owners listed their state’s economy and state and local business taxes among the top challenges in running a business. In California, the state’s economy emerged as the primary challenge for the fourth year in a row. Still, business owners in both states recognize the advantages of doing business in their states, including opportunities for growth, family ties and, in California, climate. n

About Union Bank’s

11th Annual Small

Business Economic Survey

Since 2000, Union Bank has

surveyed small businesses in

order to gain insight into the

challenges they face and to

better understand their needs.

Between January 10, 2011, and

February 4, 2011, Union Bank

surveyed nearly 2,900 small

business owners throughout

California and more than 400

in Washington. The businesses,

defined for the survey as earning

$5 million or less in annual sales,

were a mix of bank customers

and non-customers. The business

owners employed an average of

13 people (California) and

14 people (Washington) and

have been in business an

average of 16 years (California)

and 22 years (Washington).


Optimistic and expect pro�ts to 61% 64% 63% 65% 61%increase in 2011

Reported lower sales in 2010 32% 31% 30% 39% 38%than in 2009

Reported no change in pricing for 42% 40% 45% 50% 41%products/services rendered in 2010

Raised some prices and lowered others 27% 26% 28% 17% 21%for products/services rendered in 2010

Felt the state’s budget crisis had a 38% 33% 31% 33% 31%moderate impact on their business



Plan to increase staf�ng levels in 2011 24% 27% 28% 29% 24%

Anticipate maintaining same staf�ng 72% 69% 65% 65% 70%levels in 2011

Had to do layoffs for economic 14% 16% 19% 18% 25%reasons in 2010

Do not anticipate layoffs in 2011 97% 96% 97% 96% 97%

Plan to maintain capital expenditures 62% 60% 65% 59% 65%to that of 2010

Reduced debt in 2010 39% 45% 33% 46% 43%

Cut operating costs in 2010 50% 53% 55% 60% 62%

Negotiated with vendors for lower 42% 47% 44% 53% 43%costs of goods/services in 2010

Anticipate continued vendor 39% 38% 36% 53% 41%negotiations for lower costs of goods/services throughout 2011

Somewhat or strongly motivated 33% 18% 25% 23% 16%to apply for credit, due to Small Business Jobs Act


Applied for loan/access to credit 27% 21% 23% 20% 35%

21%22%

33%23%

■ Signi�cant effect ■ Moderate effect

■ Little effect ■ No effect

Business Growth and Outlook

Job Growth and Layoffs

Cost Control and Capital Expenditure Plans

Cost Control Access to Credits in 2010

HOW MUCH OF AN EFFECT DID CALIFORNIA’S BUDGET CRISIS HAVE ON YOUR BUSINESS?

Approved for full amount 49% 48% 40% 23% 63%

Approved for less than 14% 11% 22% 39% 6%requested amount

Denied 38% 41% 39% 39% 31%

Of those denied, unable to �nd 69% 73% 70% 80% 78%alternate �nancing

California economy44%

60%55%

37%38%

30%

29%26%25%

0 10 20 30 40 50 60 70

State and local business taxes

State and localregulations

■ 2011

■ 2010 ■ 2009

TOP CHALLENGES IN RUNNING A BUSINESS

1 Small Business Lending in the U.S., 2010, Office of Advocacy, Small Business Administration.