A new study shows domestic economic uncertainty and concerns over lack of access to capital continue to offset indicators of an improving business environment among major private equity providers.
The study from the 2016 Private Capital Markets Project from Pepperdine University Graziadio School of Business and Management also reveals key players in private capital lending including banking, private equity investing, venture capital, and business brokers are worried about private capital access.
The majority of investment bankers surveyed report increases in deal flow, presence of strategic buyers, leverage, and deal multiples – but also slightly worsened business conditions. Investment bankers identified domestic economic uncertainty as the most important current and emerging issue facing privately held businesses, followed by access to capital and government regulations and taxes.
The study also polled business owners. Findings show 88 per cent of business owners report having the enthusiasm to execute growth strategies while only 50 per cent report having the necessary financial resources to successfully execute growth strategies. Among business owners, 25 per cent believe government regulations and taxes are the number one issue small businesses face today, followed by domestic economic uncertainty (18 per cent) and access to capital (17 per cent).
“The contrast between an improved business outlook and findings of a restrained lending environment are mirrored across virtually all stakeholder sectors,” says Craig R Everett, PhD, assistant professor of finance and director of the Pepperdine Private Capital Markets Project. “While some of the perceived disconnect is to be expected given the uncertainty around a presidential election, it more likely reflects hope for a more complete economic recovery mixed with fear of impending inflation and a lower appetite for risk from lenders.”
Lender respondents appeared to provide the most consistent findings, possibly based on their experience over the previous year. Bank and asset-based lender respondents report seeing increased credit quality of borrowers applying for credit, with increase in demand for business loans and improved general business conditions over the last twelve months. They also report expected increases in lending capacity of banks, improving general business conditions, average loan size and loan maturity, and further increases in interest rates. Notably, more than 38 per cent believe that general business conditions will improve over the next twelve months, and more than 43 per cent said demand for loans will increase.
