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Union Bank’s Small Business Economic Survey Finds Brightest Economic Outlook Since 2012

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Union Bank today announced the results of its annual Small Business Economic Survey, which showed that small business owners have the brightest economic outlook in four years. In 2014, nearly a third of entrepreneurs hired staff and significantly fewer reported layoffs.

For the first time since 2012, the majority of small business owners believe the overall economy is heading in the right direction, with an all-time high of 90 percent believing their business is headed in the right direction. The rise in optimism reflects data showing that more entrepreneurs worked longer hours in 2014 due to increased business (61 percent, up 6 points from 2013).

Despite the rosier economic outlook, hints of restraint remain in capital and labor budgets for 2015, with most owners planning to maintain the same capital spending and staffing levels as 2014. In addition, a growing contingent (18 percent, up 7 points) plans to move their business out of state, primarily due to tax burdens. While most entrepreneurs plan to stay put, significantly more owners from California (20 percent) plan to relocate compared with owners from the Pacific Northwest (11 percent).

“The survey results reflect what we’re seeing among small business owners who are encouraged about the economy and gradually hired additional staff in 2014,” said Union Bank Managing Director Todd Hollander, head of Business Banking. “Taxes remain a challenge for small business owners, especially in California, but as the economy continues to strengthen, labor and capital budgets will likely grow.”

Business Climate

Increasingly, owners (45 percent, up 2 points) believe the business climate has improved in the past two years. This optimism is reflected in the outlook for the economy, and for the first time since 2012, most owners are optimistic about both the direction of the national economy (60 percent, up 35 points from 2012) and the direction of their state economy (59 percent, up 25 points from 2012).

Among the industries surveyed, 100 percent of owners from the personal services sector (auto repair, salons, dry cleaning, etc.) believe their business is headed in the right direction (up 10 points); more owners from this sector also expressed optimism about the direction of the national economy (70 percent, up 42 points). In terms of their state’s economy, more owners from the professional services industry (physicians, certified public accountants, attorneys, etc.) believe their state’s economy is headed in the right direction (67 percent, up 5 points).

Retail store owners expressed the most pessimism about the economy — half believe the national economy is heading in the wrong direction and 53 percent believe their state’s economy is headed in the wrong direction.

Access to Credit

While the rate of business owners (13 percent) who applied for loans or access to credit in 2014 dropped 6 points from 2013, loan approval rates held fairly steady with slightly fewer owners (76 percent, down 2 points) receiving loan approvals in 2014.

In 2014, more minority business owners (25 percent) applied for a loan or access to credit compared with respondents overall (13 percent). Of those who applied, more minority business owners (81 percent) were approved compared with 76 percent overall. Among those denied for loans, significantly more owners overall (58 percent) were able to find alternative financing in 2014 (up 20 points) than the previous year.

“Helping small business owners obtain credit remains a priority for us, and it’s encouraging that alternative financing is a growing option overall and that more minority business owners were approved for loans in 2014,” said Kirsten (Didi) Hakes, head of SBA Lending at Union Bank. “Union Bank’s Business Diversity Lending and Community-Based Financing programs are two ways we’re helping to provide loan opportunities to women-, minority- and veteran-owned businesses, and we continue to see interest in these programs from business owners.”

Union Bank, recently ranked* the country’s fifth largest SBA 504 lender in both units and volume, partners with community-based financing organizations with a goal of transitioning the companies into traditional business financing with Union Bank once their companies have grown, and many of the bank’s CBF partners also provide free or low-cost technical assistance programs (i.e. business planning, accounting, marketing, etc.) to assist with the continued goal of building credit of the client and investing back into the small business community.

While the majority of small business owners (59 percent) have not experienced changes in their ability to access credit in the past two years, most (69 percent) do not plan to apply for credit in 2015. This may be related to another part of the survey which found that most owners were either unprepared (16 percent) or unsure about whether they were ready (37 percent) for a changing interest rate environment.

Labor and Capital Costs

Significantly fewer owners (15 percent) reported layoffs in 2014 compared with the previous year (28 percent). In 2014, 30 percent of owners reported new hires. Staff additions were driven by revenue — the new-hire rate among businesses with a revenue of $1 million or greater was twice as high (60 percent) as that for small businesses overall.

This year, most owners (82 percent) plan to maintain the same staffing levels, with slightly fewer owners planning to both add staff (14 percent, down 1 point) and cut staff (5 percent, down 1 point). Among those expecting to add staff, more owners plan to hire contractors, part-time help and temporary help than last year.

Surprisingly, retail store owners – the sector reporting the most pessimism about the economy – were more likely than owners from other industries to add staff in 2014 (32 percent), while owners from the personal services industry – the sector reporting the most optimism about the direction of their business and the national economy – were more likely to cut staff (22 percent) in 2014.

Fairly consistent with last year, most owners (60 percent, up 1 point) plan to keep the same capital spending levels. In 2015, fewer owners (23 percent, down 3 points) plan to increase capital expenditures and more owners (18 percent, up 2 points) plan to decrease capital expenditures.

Among industries, significantly more owners in the personal services sector (36 percent) plan to increase capital expenditures, while significantly more in the retail sector (41 percent) plan to decrease capital spending.

Government and Health Care

While fewer small business owners (23 percent, down 5 points) rated government efforts to stimulate business as good or very good, a third of owners believe that government actions taken since the economic downturn have benefited their business (up 15 points since 2012). Positive perceptions about government efforts were higher among owners of certified women and women-, minority- and veteran-owned businesses than non-certified businesses, with nearly a third (30 percent) of certified businesses rating government efforts as good or very good compared with 21 percent of non-certified businesses.

As expected based on the 2014 survey, certified businesses (9 percent) were more than twice as likely to report employment growth as a result of the Affordable Care Act compared with non-certified businesses (4 percent). Health care changes had a smaller impact on cost increases among business owners in 2014, with 48 percent experiencing increased costs compared with 87 percent in 2013.

About the Survey

Union Bank, working with its survey partner, surveyed 631 respondents (531 in California and 100 in the Pacific Northwest) online in January 2015. The small business respondents were screened to ensure that they have been in operation for a minimum of two years with owners over the age of 25. The small businesses were defined for the survey as having $15 million or less in annual sales. Based on the sample size, the survey results reflect a +/- (3.9) point margin of error (95) percent of the time; California results reflect a +/- (4.3) point margin of error (95) percent of the time. Pacific Northwest results reflect a +/- (9.8) point margin of error (95) percent of the time.

About MUFG Union Bank, N.A.

MUFG Union Bank, N.A., is a full-service bank with offices across the United States. We provide a wide spectrum of corporate, commercial, retail banking and wealth management solutions to meet the needs of customers. The bank also offers an extensive portfolio of value-added solutions for customers, including investment banking, personal trust, capital markets, global treasury management, transaction banking and other services. With assets of $113.7 billion (USD), as of December 31, 2014, the bank has strong capital reserves, credit ratings and capital ratios relative to peer banks. MUFG Union Bank is a proud member of the Mitsubishi UFJ Financial Group (NYSE:MTU) , one of the world’s largest financial organizations with total assets of approximately yen279 trillion (JPY) or $2.3 trillion (USD)1, as of December 31, 2014. MUFG Americas Holdings Corporation, the financial holding company and MUFG Union Bank, N.A. have corporate headquarters in New York City.

1 Exchange rate of USD=yen119.78 (J-GAAP) as of December 31, 2014

*Source: U.S. Small Business Administration (10/1/2013 through 9/30/2014) based on approved loans.

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