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Nation’s small businesses seem stuck in recession, U.S. Bank survey finds

Despite pronouncements that the recession ended two years ago, small-business owners see a very different reality, according to a recent 25-state survey.

Despite pronouncements that the recession ended two years ago, small-business owners see a very different reality, according to a recent 25-state survey (PDF).

Seventy-eight percent of of nearly 3,000 small-business owners think the United States is still in a recession, according to Minneapolis-based U.S. Bank, which released the survey Thursday.

While that’s down from the 89 percent who saw the nation in a recession a year ago, 85 percent of respondents also think the economy will still be stuck in a recession this time next year.

“We are heartened to see the outlook improving, but there is still work to do. Small-business owners are starting to see the recessionary clouds part, but for many, the recession remains,” said Rick Hartnack, vice chairman and head of consumer and small business banking at U.S. Bank.

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U.S. Bank said it increased small-business loans outstanding by more than 22 percent in 2010 over 2009, hired an additional 150 small-business specialists in key markets and is still hiring.

But overall lending to small business remains troubled. In a possible reflection of economic uncertainty, only 20 percent of survey respondents said they borrowed or tried to borrow money during the last six months.

separate report (PDF) from the U.S. Small Business Administration (SBA) Office of Advocacy showed total small-business loans outstanding dropped $15 billion, or 2.4 percent from $624.3 billion in December 2010 to $609.4 billion in March 2011.

Despite the overall decline, SBA lending to small business is up. In an email message, SBA administrator Karen Mills said that agency lending activity hit a record volume in the last three months of 2010 because of due loan enhancements under last September’s Small Business Jobs Act.

”Even though those loan enhancements are now gone, we’ve rebounded to pre-recession levels in our weekly loan volume. Another good sign is that the conventional small business lending market seems to be coming back,” she added.

“The recession hit the small business community hard,” she said, noting that recovery in the small-business sector “has been slow, but it’s been steady.”

Citing administration efforts to support small business through tax cuts and SBA lending programs, she said “the SBA has been there to support small businesses with capital, contracts and counseling.”

Christine Hobrough, senior vice president at U.S. Bank responsible for the Twin Cities market, described her small-business customers as cautious: “They’re thinking carefully about borrowing, thinking carefully about hiring. They definitely want to expand their business but it’s very thoughtful.”

She also cited uncertainty in Minnesota over the state budget impasse and possible government shutdown as adding to business uncertainty.

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Small-business customer lending is up at the bank, Hobrough said, but borrowers are “making sure they’ll be able to pay back” a loan before taking on additional borrowing. Citing growth in both small-business deposits and the number of small-business accounts, she remains optimistic despite the survey results. “I’m excited about small business in everything I see,” she said.

Among other findings in the U.S.  Bank survey:

  • 26 percent of small business owners report revenue higher this year than last, while 38 percent expect flat revenue and 10 percent expect revenue to be lower than a year ago. In the 2010 survey, 55 percent said revenue was as good as or better than the previous 12 months.
  • 70 percent of small businesses intend to keep staffing levels flat, while 22 percent intend to hire in the coming 12 months, up slightly from a year ago.
  • 27 percent cited “economic uncertainty” as the most significant challenge facing their business today. “Poor sales” were cited by 16 percent, followed by “federal regulations” (12 percent), “competition” (9 percent) and “taxes” (8 percent).
  • Minnesota small businesses were slightly less pessimistic than the overall survey, with 70 percent of respondents saying the United States is in a recession, compared with 78 percent of all respondents.
  • Only 6 percent of Minnesota respondents thought the local economy was worse off than the national economy, compared with 41 percent of all respondents who thought their local economy was worse.
  • One-third of Minnesota small businesses see revenue growth this year, compared with 26 percent nationally.

The random survey of 2,923 owners of businesses with $10 million or less in annual revenue was conducted between April and May across 25 states the bank serves. It also looked at regional conditions in Arizona, Northern California, Southern California, Colorado, Illinois, Minnesota, Missouri, Ohio, Oregon, Washington and Wisconsin.