LOS ANGELES--(BUSINESS WIRE)--A new study from the 2016 Private Capital Markets Project from Pepperdine University Graziadio School of Business and Management 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 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 percent of business owners report having the enthusiasm to execute growth strategies while only 50 percent report having the necessary financial resources to successfully execute growth strategies. Among business owners, 25 percent believe government regulations and taxes are the number one issue small businesses face today, followed by domestic economic uncertainty (18 percent) and access to capital (17 percent).
“The contrast between an improved business outlook and findings of a restrained lending environment are mirrored across virtually all stakeholder sectors,” said Craig R. Everett, Ph.D., 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 percent believe that general business conditions will improve over the next twelve months, and more than 43 percent said demand for loans will increase.
Other key findings include:
- 45 percent of business owners report they were seeking bank business loans or business credit card financing as a source of funding, followed by friends and family (13 percent).
- Almost three-quarters of businesses (74 percent) that sought financing in the past twelve months had a successful raise.
- Nearly three-quarters of small businesses (72 percent) are planning to hire additional workers.
- Investment bankers noted a shortage of capital for companies with less than $5 million in EBITDA, but a general surplus for companies with $5 million in EBITDA or more.
- Nearly 42 percent of private equity survey respondents said demand for private equity is up from twelve months ago.
The Pepperdine Private Capital Markets Report survey was originally launched in 2007 and is the first comprehensive and simultaneous investigation of the major private capital market segments. The Pepperdine Private Capital Markets report survey investigated, for each private capital market segment, the important benchmarks that must be met in order to qualify for capital, how much capital is typically accessible, what the required returns are for extending capital in today’s economic environment, and outlooks on demand for various capital types, interest rates, and the economy in general.
About the Pepperdine University Graziadio School of Business and Management
A leader in cultivating entrepreneurship and digital innovation, the Pepperdine University Graziadio School of Business and Management focuses on the real-world application of MBA-level business concepts. The Graziadio School provides student-focused, globally-oriented education through part-time, full-time, and executive MBA programs at our five Southern California locations and at our Silicon Valley, Santa Barbara and Dallas campuses, as well as through online and hybrid formats. In addition, the Graziadio School offers a variety of master of science programs, a bachelor of science in management degree-completion program, and the Presidents and Key Executives MBA, as well as executive education certificate programs. Follow the Graziadio School on Facebook, Twitter at @GraziadioSchool, and LinkedIn.
