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Discover® Small Business WatchSM: Small Business Economic Confidence Stalls after 3-Month Slide

Record Number of Small Business Owners Rate U.S. Economy as Poor

JOB CREATION ON HOLD: 73% of Small Businesses Hurt By Recession

RIVERWOODS, Ill., Sep 27, 2010 (BUSINESS WIRE) -- A three-month slide in small business confidence ended in September, driven in part by fewer small business owners reporting cash flow issues than they did in August, according to the Discover® Small Business WatchSM. The monthly index rose from 73 in August to 73.8 in September after falling 14.4 points since May.

"While the recession is technically over, large numbers of small businesses owners say they won't see true recovery for at least six more months," said Ryan Scully, director of Discover's business card. "Three quarters of them were hurt by the downturn, which affects their ability to add jobs, build inventory or re-invest in their businesses."

Forty-six percent of small business owners report having cash flow issues this month, down from 53 percent in August; 50 percent said they do not have cash flow issues and 5 percent aren't sure.

Despite this, a record 68 percent of small business owners rate the economy poor, up from 62 percent in August; 26 percent rate it fair, 4 percent rate it good and only 2 percent rate it excellent.

In September, intentions for spending on business development in the next six months produced two record numbers. A record low 16 percent of small business owners plan to increase spending, down a percentage point from last month's then record low of 17 percent. Fifty-seven percent of small business owners report plans to decrease spending, the highest in the history of the Watch, while 24 percent report no changes to their spending plans and 3 percent aren't sure.

Other September Confidence Indicators:

  • 55 percent of small business owners report economic conditions are getting worse for their businesses, equaling the record high percentage from last month; 23 percent expect them to stay the same and 20 percent see them getting better.
  • 57 percent of small business owners say the economy is getting worse, down 5 percentage points from August; 26 percent say it's getting better, 15 percent report it's the same and 2 percent aren't sure.

Small Business Job Creation on Hold

Nearly three out of four respondents, 71 percent, said small business owners are waiting for the economy to improve before they do any hiring, with only 9 percent who think otherwise and the remaining 20 percent just not sure.

When asked if the economic climate has hurt or helped their business, 73 percent said it had hurt them, 4 percent said it helped them and 21 percent said it had no impact. Of those whose businesses were hurt, 41 percent think it will take more than a year to recover, while 24 expect it to take six to 12 months, 11 percent said three to six months and 1 percent expects to recover in less than three month. Only 2 percent of small business owners said their businesses had already recovered.

When the economy improves, 46 percent of small business owners said their segment was more likely to begin hiring, while 35 percent thought larger businesses were more likely to lead the hiring charge; 19 percent weren't sure.

On the issues of proposed tax breaks and federal stimulus, small business owners were evenly split on whether they would lead to more job creation: 41 percent think tax breaks and stimulus would lead to more jobs, and 42 percent disagree, with 17 percent not sure.

When asked to choose the biggest obstacle small businesses face when hiring from the following list, respondents answered accordingly:

  • 28 percent, Uncertain economic outlook
  • 22 percent, Not enough revenue
  • 17 percent, High taxes
  • 7 percent, Can't secure loans
  • 9 percent, None of the above
  • 2 percent, Not sure.
  • The remaining 16 percent say they never intend to hire more workers.

A 100 percent tax break for capital investments will only help about 1 in 4 small businesses: 26 percent said it will help, 51 percent said it won't help them, and 23 percent aren't sure.

Loans Not Key to Small Business Growth

When asked if they needed a loan to grow their businesses, 71 percent said they did not; 20 percent said they did, and 9 percent aren't sure. Of those who do need a loan, 44 percent need less than $25,000, 37 percent need $25,000 to $100,000, 11 percent need $100,000 to $250,000, 4 percent need $250,000 to $1 million, and 3 percent need more than $1 million.

Free Money Most Likely Would Pay Off Debt or Go Back Into Business

When small business owners were asked what they would do with a no-strings-attached financial windfall from the following list of options:

  • 31 percent would pay off debt
  • 29 percent would make an investment in their business
  • 19 percent would save or invest it
  • 7 percent would put it to personal use
  • 3 percent weren't sure
  • 8 percent said none of the above
  • No one planned to invest it in technology

About the Small Business Watch

The Discover Small Business Watch is a monthly index measuring the relative economic confidence of U.S. small business owners who have less than five employees, a segment that consists of 22 million businesses producing more than a trillion dollars in annual receipts. The Watch is based on a national random survey of 750 small business owners. It is commissioned by Discover Business card, which strives to offer the best business credit card for American small businesses, and is conducted by Rasmussen Reports, LLC (http://www.rasmussenreports.com), an independent survey research firm. The numeric index is calculated by assigning values to responses to a set of six consistent questions. The base value of the Watch was established at 100.0 based on surveys conducted in August 2006. In addition to generating the index, the Small Business Watch surveys small business owners every month on key issues, and polls 3,000 consumers four times per year to gauge purchasing behavior and attitudes towards small businesses. For past results and survey data, visit http://www.discovercard.com/business/watch. For information on Discover Business card, visit http://www.discovercard.com/business.

About Discover

Discover Financial Services (NYSE: DFS) is a direct banking and payment services company with one of the most recognized brands in U.S. financial services. Since its inception in 1986, the company has become one of the largest card issuers in the United States. The company operates the Discover card, America's cash rewards pioneer, and offers personal and student loans, online savings accounts, certificates of deposit and money market accounts through its Discover Bank subsidiary. Its payment businesses consist of Discover Network, with millions of merchant and cash access locations; PULSE, one of the nation's leading ATM/debit networks; and Diners Club International, a global payments network with acceptance in more than 185 countries and territories. For more information, visit http://www.discoverfinancial.com.

The views and opinions expressed by small business owners and consumers who participate in the Small Business Watch survey are their own and do not necessarily reflect those of Discover Financial Services or its affiliates.

SOURCE: Discover Financial Services

Discover Financial Services
Jon Drummond, 224-405-1888
jondrummond@discover.com
or
Burson-Marsteller
Lauren M. Onis, 212-614-4069
lauren.onis@bm.com