Would-be Entrepreneurs See Fewer Opportunities
By: Jeremy Quittner A new report from Babson College shows entrepreneurial activity is declining on economic concerns.
With so much global economic uncertainty, and fears that the U.S. economic expansion can’t last forever, business owners are starting to feel the pinch.
That’s according to Babson’s latest annual Global Entrepreneurship Monitor report, released on Tuesday. The report found that by almost every measure,entrepreneurs and aspiring entrepreneurs are feeling less hopeful about their prospects.
“We are seeing signs of less optimism looking ahead,” says Donna Kelley, a professor of entrepreneurship at Babson College and a co-author of the report. “Indicators in the economy are a cause for being cautious.”
GEM polled some 5,944 business owners and would-be business owners in the U.S. By the numbers, here’s what the report found:
- The perception that there is an opportunity to start a business fell by four percentage points to 47% in 2015 compared to 2014, reversing a four-year trend of increases.
- Entrepreneurial activity, which includes formulating plans for a new business, opening a new business, and maintaining an existing business, also dropped by 2 percentage points to 12%, similarly reversing a trend of steady increases since 2010.
- Job creation declined, with 22% of business owners saying they added at least one employee in the past six months, compared to 27% in 2014. Longer term, fewer business owners are planning to staff up in the next five years, with 39% saying they will add six or more workers, compared to 45% in 2014.
- Similarly, fewer businesses expected to make money, with 61% of respondents saying they would be profitable in 2015, a decrease of 30 percentage points compared to 2015.
- The cost of opening a new business is going up, with entrepreneurs spending a median $17,500 in 2015, compared to $15,000 in 2012.
On the plus side, the survey found that, contrary to popular opinion, banks are a prime source of capital for business owners. More than a third of those surveyed said they tapped a bank for funds, compared to about a quarter who said they relied on family, or who received venture capital. Government funding programs also provided financing to 22% of businesses surveyed.
“The vast proportion of entrepreneurs are local and have good relationships with banks,” Kelley says. She adds most local small businesses aren’t seeking multi-million dollar loans to support their businesses, and banks have become “entrepreneur-friendly” in recent years.
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