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Union Bank's 10th Annual Small Business Survey Shows California Entrepreneurs Cautiously Optimistic about Economic Recovery

(March 19, 2010)

Outlook Has Improved but Respondents Still Wary of Investing in Business Expansion

Ninety-Five Percent of Respondents Say They Do Not Anticipate Layoffs in 2010

After coping with layoffs, declining sales and spending cutbacks in 2009, California small business owners are planning to play it safe in 2010. The results of Union Bank's 10th Annual Small Business Survey, released today, show that the majority of business owners intend to keep capital expenditures and staffing levels the same as last year.

"Those who have survived the recession by reducing spending remain cautious as they wait to see what happens this year in Sacramento and Washington."

However, the survey-which has been tracking small business trends in California since 2000-also demonstrates that last year's high level of pessimism has given way to a more positive outlook.

Anticipating Economic Recovery

Fifty-three percent of business owners expect to see an economic recovery during the second half of 2010 and into 2011. Just over half of the respondents (51 percent) are optimistic about seeing higher profits in 2010. This represents a 17 percent increase from last year's study, which showed a nine-year low in respondents' profitability outlook.

The 2010 survey, based on interviews conducted in January, is the largest in the past decade, with 2,541 participants statewide.

"We've been through the deepest recession since the 1930s, so it's not surprising that small business owners are in a holding pattern," said Executive Vice President Joseph Benoit, head of Union Bank's Business Banking group. "Most entrepreneurs believe the worst is over, but they're still taking a very conservative position because of the slow pace of the recovery. They're not confident enough to shift into a growth mode yet."

The survey data show that nearly one out of four business owners (24 percent) had to lay off employees for financial reasons in 2009. This is a five percent increase from 2008 and the highest level of layoffs since the survey began tracking staffing reductions in 2002. Business owners reporting layoffs hit a low of six percent in 2006, but the number has increased each year since then.

Nearly half of business owners (48 percent) reported lower sales in 2009 compared to 2008, the largest percentage in the history of the survey. Fifty-five percent cut their operating costs last year, and 39 percent reduced their debt to protect their company from turmoil in the financial system.

"Given all these difficulties, it's encouraging to see that 95 percent of small business owners do not anticipate layoffs in 2010," said Senior Vice President Christy Schmitt, head of Union Bank's Retail Small Business Banking.

Biggest Challenges

The top challenge identified in running a business in California - the state's economy - remained the same as last year, and this result accurately reflects much weaker economic data for California than the rest of the nation, according to Union Bank's Director of Economic Research, Senior Vice President Kei Matsuda. For example, California lost six percent of its payroll employment in 2009 while the nation lost only 4.3 percent.

According to the survey results, the state's economy is the number one concern of 60 percent of business owners, a five percent increase from last year as 57 percent felt the state's budget crisis had a moderate or significant impact on their business in 2009.

As concern about the national economy dropped from 31 percent last year to 25 percent this year, state and local business taxes emerged as the second biggest challenge to doing business in California. This is the top challenge for 38 percent of business owners, up from 30 percent last year.

The third biggest challenge continues to be workers' compensation costs (29 percent). For the third year in a row, most business owners (65 percent) said their workers' compensation insurance premiums remained the same in 2009 as the previous year. However, another 26 percent reported a rise in their premiums, a five percent increase from the previous year.

As in last year's survey, business owners want the Obama Administration to provide relief by cutting taxes on small businesses, creating tax incentives to encourage job creation and lowering health care costs.

"Small business owners in California are still hoping for relief from both the state and federal government to reduce costs that are outside their control," said Aida Alvarez, the former head of the Small Business Administration during the Clinton Administration and a member of Union Bank's board of directors. "Those who have survived the recession by reducing spending remain cautious as they wait to see what happens this year in Sacramento and Washington."

Other Survey Highlights

  • 21 percent of business owners expect to increase capital expenditures in 2010. This number dropped from 73 percent in 2006 to 35 percent in 2007 and hit a nine-year low in 2009 at 17 percent.
  • 19 percent of business owners were denied a loan or access to business credit in 2009, and 67 percent of these businesses were unable to find alternate financing.
  • 37 percent reported no change in their pricing for products or services in 2009, while another 30 percent raised some prices and lowered others.
  • 41 percent said they had less flexibility in negotiating costs and services with vendors in 2009 than in 2008.
  • 45 percent of small business owners offer health care coverage to their employees, down slightly from last year's study. Nearly half of those with health care coverage (46 percent) said the cost of health care has not affected their business.
  • The top advantages of doing business in California have remained the same since the survey began asking this question in 2004. They are: the state's favorable climate, opportunities for growth and family ties.
  • 52 percent offer paid vacation, a drop of six percent from last year and 10 percent from 2008. Thirty-eight percent offer flexible work arrangements.
  • 43 percent are using recycled materials, while 30 percent have taken no action to make their business "greener."

About the Survey
Union Bank surveyed 2,541 small business owners throughout California from January 11-29, 2010. The businesses, defined for the survey as $5 million or less in annual sales, included a mix of bank customers and non-customers. Business owners surveyed employed an average of 16 people and have been in business an average of 12 years. Based on the sampling size, survey results reflect a +/- 2 percent margin of error 95 percent of the time.

About UnionBanCal Corporation & Union Bank, N.A.
Headquartered in San Francisco, UnionBanCal Corporation is a financial holding company with assets of $86 billion at December 31, 2009. Its primary subsidiary, Union Bank, N.A., is a full-service commercial bank providing an array of financial services to individuals, small businesses, middle-market companies, and major corporations. The bank has 340 banking offices in California, Oregon, Washington and Texas and two international offices. UnionBanCal Corporation is a wholly-owned subsidiary of The Bank of Tokyo-Mitsubishi UFJ, Ltd., which is a subsidiary of Mitsubishi UFJ Financial Group, Inc. Union Bank is a proud member of the Mitsubishi UFJ Financial Group (MUFG) (NYSE:MTU), one of the world's largest financial organizations. Visit for more information.

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