A decade ago, the U.S. economy very nearly crumbled, after the housing crisis laid waste to the storied investment house Lehman Brothers, and the government (along with U.S. taxpayers) bailed out the nation's biggest banks. Today, with renewed access to credit and expanding markets, small businesses are doing better. But uneven results across the country should serve as a reminder that entrepreneurs have no room to get complacent.  

Entrepreneurial activity in the United States continues to be stable, with the Inc. Entrepreneurship Index clocking in at 85 out of 100 in the second quarter of 2018, down from 87 in the previous quarter. The percentage of Americans who identify as entrepreneurs is holding steady at 6.3 percent, or about 15.5 million. This includes self-employed solopreneurs. Job growth by small businesses has continued to decline slightly. On the upside, access to capital has ticked up, with about 43 percent of loan requests being approved, according to Index component data.

Your money

The recent increase in access to capital has been driven primarily by big banks approving more loans for small businesses than they were in the years immediately following the recession. In the second quarter, big banks approved 25.9 percent of loan applications from small businesses, as shown by the Inc. Entrepreneurship Index. According to Inc. data partners at Biz2Credit, this is more than double the level seen in 2012. Although small banks, credit unions, and alternative lenders all have higher rates of approval for small-business loans, the increase in big-bank approvals has been the most meaningful.

"We're seeing small-business growth take off, and many business owners are fueling that growth with funding that wasn't available to them just five years ago," says Rohit Arora, CEO of Biz2Credit. "Our data shows that loan-approval rates for small businesses have increased to record post-recession approvals. Women- and minority-owned businesses are benefiting the most from this new lending strength and are securing small-business funding in greater numbers than before."

Jobs and wages

In another measure of entrepreneurial health, a tighter labor market means small businesses are not creating as many jobs as they were one year ago. The slowdown in job creation is consistent with historical research on business cycles: Close to the peak of an economic cycle, large businesses create more jobs compared with small businesses. Inversely, small businesses create the most jobs relative to large companies during recessions.

The Inc. Entrepreneurship Index shows the upside: With the unemployment rate reaching a new low, wages are being pushed up for small-business employees at an annualized growth rate of 2.65 percent. In addition, hiring is becoming less discriminatory, with fewer job postings requiring college degrees. 

These changes are not consistent across the country, however. Small-business confidence is at a record high and the unemployment rate is at a record low, but zooming in on local economies reveals ongoing challenges. The most economically prosperous communities in the U.S. reap the most benefits, while other areas just tread water. In terms of earnings growth for small-business employees, Phoenix leads the pack, followed by Riverside, California, Denver, San Diego, and Los Angeles. On the other end of the spectrum, metropolitan areas like Dallas, Seattle, and Detroit are seeing little wage growth.

"While wages have increased modestly, overall wage growth is still much lower than we'd expect, especially given the tight labor market, and it's been decelerating," according to Frank Fiorille, vice president of risk, compliance, and data analytics at Paychex. In June 2017, hourly earnings growth for small-business workers stood at 2.93 percent. In June 2018, it was 2.47 percent.

What now?

As some have said before, the U.S. is not one single economy, but a collection of many local economies. So it is little wonder 10 years past the global financial crisis, amid one of the longest and strongest expansions in U.S. history, that not every part of the country is enjoying the spoils. As such, wise business people--in healthier pockets of the country, especially--ought to take this opportunity to establish contingency plans. 

"While the economy is strong now, it doesn't mean it's OK for business owners to get complacent," Arora says. "Small businesses should be preparing themselves for the next slowdown, even when times are good. The smartest thing you can do as a business owner right now is understand your cash flow."

About the Inc. Entrepreneurship Index

The Inc. Entrepreneurship Index measures American entrepreneurship every quarter with public data as well as data courtesy of Paychex and Biz2Credit. Read more about how the Index is calculated: The Methodology and Data Driving the Inc. Entrepreneurship Index.

Biz2Credit matches entrepreneurs with credit solutions. With more than $1 billion in funding and 150,000 small- and midsize business users in the U.S., it is an online small-business lending platform, working with major banks, credit rating agencies and SMB service providers.

Paychex.com is a provider of human-capital management solutions for payroll, HR, retirement, and insurance services. Paychex serves approximately 605,000 payroll clients in more than 100 locations, paying one out of every 12 American private sector employees.

Published on: Oct 1, 2018