Entrepreneurship has reached unprecedented new levels of popularity—it seems everyone is striving to become a business owner nowadays. It’s an aspiration that, just a few years ago, wasn’t anywhere near as “cool” as it is today.
Indeed, there are numerous statistics now confirming this trend, including incredible news from the recent 2017 SBA report which shows that small businesses are now lasting longer than ever before.
When it comes to the standard business survival rate, entrepreneurs like you are enjoying a substantial boost in first-year business survival rates.
As the SBA reports, from 2005 to 2015, an average of 78.5% of new businesses managed to stay in operations throughout their first year.
But in an incredible, unprecedented change, the first-year survival rate from 2015 to 2016 jumped to 79.9%.
The over 1% increase signals excellent news for entrepreneurs in an increasingly competitive small business sector.
Crunching the Numbers
A breakdown of the data shows exactly what kinds of changes have occurred.
For example, in 2008, the SBA reports that there were a total of 487,673 startups. However, in the same year, there were also 470,550 closures.
That’s a difference of roughly 17,000—though, by the year 2014, that gap closed substantially to only 391,553 closures compared to 403,902 startups.
Though it’s not only first-year performances doing well. Regarding longer-term five year statistics, the numbers are clear: companies are managing to sustain themselves for extended periods of time.
As the SBA report shows, approximately 50% of all small businesses last five years or longer. In 2006, some of the lowest 5-year survival rates were reported at around 45.4%. By 2011, higher averages of about 51.0% were seen.
Predictably, though, the figures do gradually drop over much more extended periods of time. This is to be expected, and in no way does it indicate any volatility in the marketplace. For example, by the ten year mark, only about one-third of businesses survived. There are a variety of factors that contribute to this; many have nothing to do with entrepreneurial shortcomings.
Why The SBA Report Matters
Overall, the recent SBA findings are good news for your current (or future) business due to a few, key reasons.
First, entrepreneur confidence is often an indicator of economic strength and stability. An economy that lacks capital tends to resist startups because of the amount of risk required to get a company up and running. When more businesses are willing to start—and can manage to stay afloat for a year or more—it indicates a marketplace with high potential for growth.
Second, the SBA report shows that businesses are doing much more than just “starting up.” Long-term success is the real indicator of a company’s merit. Your new entrepreneurial venture may have high energy behind it during its first month or two—but can it sustain that for extended periods of time?
Indeed, taking out a loan to buy an office and fund your startup’s operations for 60 days might seem productive, but can the business eventually garner its momentum and profitability?
The 2017 SBA report reveals that not only are more people starting businesses but that more people are managing to keep the doors open successfully for longer.
The Role of Micro Businesses
Lastly, there is the critical role that microbusinesses play in the US economy. A microbusiness is a firm with nine employees or fewer.
Although the name itself might suggest otherwise, these very tiny companies make a substantial portion of economic activity.
In 2016, for example, there were 3.9 million microbusinesses which comprised 74.8% of all employers in the private sector, according to the SBA. That is a massively lopsided figure yet it nonetheless reiterates just how significant these firms are.
Additionally, these micro businesses accounted for 10.3% of all private-sector jobs. In truth, these tiny-structured organizations are a critical part of the economy that just cannot be overlooked.
At their core, small businesses—no matter how little they are—are essential building blocks that create jobs and inject capital into the system. Ignoring these, or downplaying their importance, only detracts from how integral they are. Furthermore, these firms are actually very robust.
According to the SBA, in 2014, 65% of micro businesses were more than five years old. This alone suggests something important about the power of small business and the role that the leadership of one man or woman plays in setting an organization’s course.
Despite having no more than nine employees, micro businesses can weather the economic storm and survive more than five years at a very high rate. Having a large number of workers in your company does not necessarily secure long-term success.
The 2017 SBA report is incredible news for a novice or seasoned entrepreneur looking to make a name for themselves in coming years. An over 1% increase in first-year survival rates is very significant from a macroeconomic perspective.
Now, the question is: what does this mean for entrepreneurship in 2018?
Optimism for 2018
The increase in first-year survival rates suggests that 2018 could be a lucrative year for small businesses.
To understand just how big 2018 could be, it’s first important to consider the role that these firms currently play.
Small businesses comprise 99.9% of all firms in the economy. Furthermore, they make up 99.7% of all businesses with paid workers. 97.6% of all organizations that export come in the form of small companies, making up 32.9% of all known export value.
Regarding employment, 47.8% of all private sector employees are hired by small businesses.
Given this, it’s safe to say that 2018 could have massive ramifications if the positive SBA statistics on first-year survival rates hold true.
As a general rule, the overarching theme for your small business moving into this year is that there is high optimism.
Big Banks Backing Small Business
One key trend in 2018 is the rise of big banks opening their coffers to smaller businesses.
As reported by Inc.com, one in four funding requests receive approval—a new high unseen since January 2011.
Rohit Arora describes it succinctly in his article “5 Small Business Finance Trends of 2018”:
“While we may never see the free-flowing cash that predated the Lehman Brothers crash and the Great Recession, the spigot has been opened. In June 2011, only 8.9 percent of small business loan applications were approved.
“Now, the figure is more than twice that. The Federal Reserve’s decisions over the past 12 months to continuously raise interest rates from the near zero percent level of the past few years have made it more profitable for big banks to lend money. If we continue along this path in 2018, big banks will continue to lend.”
Whereas marketplace volatility since the 2008 recession has added a hostile stigma to big-bank-lending, 2018 could be the start of a new era of optimism. Essentially, as the SBA report eludes to, the more that businesses can survive beyond the first year, the more confidence banks will have in lending money to them.
The SBA Strengthens Its Helping Hand
The Small Business Administration (SBA) ramped up it’s loaning during the fiscal year 2017.
The organization has provided a variety of programs over the years to help support smaller entrepreneurs, including minorities. The SBA 7(a) Loans, for example, are designed to serve neglected communities that have historically struggled to achieve economic sustainability.
Similarly, the organization’s 7(a) program offered $25.44 billion in funds over 62,430 loans. A separate initiative, known as CDC/504 Lending saw an increase up to $5 billion in FY17.
Small Banks Step Up Big Time
Smaller banks are playing an essential role in backing small business which is likely to persist throughout 2018. Aside from the SBA’s recent lending trends, banks that don’t match the clout or big bucks can still have a significant impact.
In fact, a large portion of the lending activity is stemming from small banks, which can be incredibly beneficial for upcoming firms. The primary reason for this is that credit scores can be a bar to accessibility in some instances.
A brand new startup may not have the credit score or reputation to justify a loan from bigger banks that maintain rigidly high standards. This is where smaller banks come into the picture. Often, these more local institutions are willing to take greater risks and work with smaller firms.
Good News for 2018
In all, 2018 is showing great signs of optimism for entrepreneurs and small business. As the 2017 SBA report shows, first-year survival rates are larger than they’ve been in quite some time. The implications for upcoming firms cannot be overstated.
Rising from 78.5% all the way up to 79.9% in 2016, it’s a sign of progress that reflects the optimism of economic potential. Add to this the longer-term survivability of small firms beyond five years, and it becomes clear that the marketplace is setting up for something unprecedented.
Moving into 2018, small businesses could see some of the most welcoming conditions—including from banks of all sizes. Where a bigger bank might impose a standard too high, a smaller bank could provide great alternative options for you. At its core, the 2017 SBA report is good news in a world where entrepreneurship is more popular—and competitive—than it has been in many years.
– Inc: https://www.inc.com/rohit-arora/5-small-business-finance-trends-of-2018.html
– Forbes: https://www.forbes.com/sites/rohitarora/2018/01/09/as-2018-begins-lots-of-small-business-loan-options-are-open-to-entrepreneurs/#4fc96a2c5189
– SBA: https://www.sba.gov/sites/default/files/advocacy/SB-FAQ-2017-WEB.pdf
Bio: Marsha Kelly sold her first business for more than a million dollars. She has shared hard-won experiences as a successful serial entrepreneur on her Best4Businesses blog, where she also regularly posts business tips, ideas, and suggestions as well as product reviews for business readers. As a serial entrepreneur who has done “time” in corporate America, Marsha has learned what products and services really work well in business today. You can learn from her experiences to build your business. See a full copy of her below infogram at her Best4Businesses blog.