A Look at the Relationship Between Personal Savings and New Business Creation
In a recent article from the Gallup Business Journal, a look was offered at the connection between personal savings and business startups, revealing a correlation between savings in one quarter and new businesses down the road. According to data cited in the article, personal savings rate has been steadily declining since the end of the 70’s, as well as business startups. Upticks in personal saving rates were associated with upticks in business creation around four years after the initial spike, indicating that the capital saved up over saving years would be spent on business creation after having accumulated for a period.
2008 saw new business creation dip below the rate of business closure. This worrying statistic coincides with the depths of the Recession, which saw many Americans lose large amounts of personal wealth. Current economic conditions, including big bank lending statistics, have pointed to a slow recovery but lending to small businesses is still below pre-recession levels on the part of traditional banks, with most of the improved statistics representing approvals for larger, older and more profitable businesses falling within the overall definition of SMB’s.
With business creation still below business death, improving the ability of small business owners to access capital should be a national priority. Small businesses are one of the key economic engines of the US. Without the job creation and contributions to local and national economies generated by small business owners, leaving the recession’s effects behind would not be possible. Alternative sources of capital have been gaining significant attention in the financial world as driving forces of innovation that is allowing more and more businesses to receive the financing that they need to succeed. Disruption in the way that small business loans get approved promises to continue going forward, representing a potential source of answers to the lingering questions surrounding how small businesses access the financing that they require to grow.
Photo Credit to Jacob Edward