> Posted by Gina Harman, CEO, Accion’s U.S. Network

Accion is constantly inspired by small business owners we work with in the U.S., who have transformed their lives by starting, sustaining or growing a business. At the same time, we are increasingly aware of the importance of demonstrating through research the value of our investments in small business success (and the investments of government agencies, philanthropic organizations and corporations that make our work possible). In assessing this impact, we are confronted with the challenge of understanding the value of our services in helping entrepreneurs achieve a diversity of business and personal goals. Our research finds that while many small business owners in the U.S. are looking for growth, financial security and family financial health is sometimes just as important. These findings resonate with conclusions from recent research on Latin American small businesses by CFI Fellow Christy Stickney.

Through the Aspen Institute’s FIELD program and its microTracker initiative, we know that services provided by mission-based lenders lead to tangible outcomes for U.S. small business owners one year after they receive a loan – including a 94 percent business survival rate, overall increase in average revenues and three jobs created or sustained on average per business. However, we have been limited in our study of the holistic, longer-term impacts of small business lending and business advising – particularly those impacts that cannot be captured through numbers alone. That’s why Accion and fellow mission-based lender Opportunity Fund launched a first-of-its-kind, multi-year evaluation effort in 2015, which will inform the work of mission-based lenders across the country. This ongoing research is made possible through generous lead funding from the W.K. Kellogg Foundation and JPMorgan Chase & Co., with additional support from S&P Global.

In the first phase of research, we surveyed 571 Accion and Opportunity Fund borrowers, representing regionally-representative samples across 27 states, and completed in-depth interviews with 188 of them.

What We’ve Learned

Preliminary findings from this research indicate that our services have clear benefits to entrepreneurs. The majority said they had increased business sales (62 percent) and profit (55 percent) in the previous six months, and most said that their loans had a significant impact on these growth indicators. Out of the 76 percent of business owners with employees, about a third had hired additional workers in the previous six months. Nearly half of those who had hired more people said that their loan had a significant impact on their ability to do so. Entrepreneurs also had positive outlooks on the future: most projected increases in business sales (83 percent), business profit (81 percent), take-home pay (71 percent) and household savings (69 percent) over the next six months.

When asked to rate the impact of their loan on various aspects of their lives, business owners said that their loan has made the most impact on their confidence to achieve their goals and on their ability to improve their credit.  Many spoke of the discouraging effect of loan denials from traditional financial institutions, noting that an approval from Accion or Opportunity Fund helped them persevere. As one Chicago entrepreneur said, “Accion gave me hope to keep my dreams and goals alive and to continue on creating and giving back.”

A key theme that emerged in this research was the role that family plays in a small business owner’s personal goals. The top two personal goals for small business owners are related to family: “have more money to support my family” (91 percent) and “have more time to spend with my family” (83.5 percent). Entrepreneurs also spoke about their desire to create a legacy for their family – including making their children proud and handing down their business to them in the future.

Findings also suggest that entrepreneurs have diverse visions for the future of their businesses. For many entrepreneurs participating in the study, the desire for financial stability outweighed interests in business growth. About a third of participants had increased household savings in the previous six months and nearly 40 percent had increased their take-home pay.

Most business owners (59 percent) said their loan helped them greatly in achieving their personal goals. For example, despite continuing to work long hours or have multiple jobs, many reported feeling more control and freedom as a result of their loan, affording more flexible schedules and greater autonomy in deciding how to balance work and family time.

What This Means for Mission-Based Lending

Through these preliminary findings, we know that services provided by mission-based lenders like Accion and Opportunity Fund help small business owners gain the financial stability and confidence they need to achieve their goals. However, these findings also underscore the fact that access to capital is just one element of a small business owner’s journey toward greater financial health. Most participants said they are not well prepared for a financial emergency, despite increases in their revenue and improvements in their financial management practices. These findings echo recent research from the JPMorgan Chase Institute, which found that the typical small business only has 27 days of a cash buffer before it would be impossible to cover any expenses, operational or otherwise.

Over the next year, we will examine the longer-term impact of small business lending through additional interviews and borrower surveys. We will also explore new questions that were raised in the initial phase of research, including the challenges small business owners face in preparing for financial emergencies. We hope that findings related to this research will encourage productive dialogue and exploration among our peers and those who are invested in our work. Together, we can advance solutions that enhance the impact of mission-based lenders on small business owners, their families and their communities.

Join us! Review the preliminary findings and sign up for updates on research insights, learning opportunities and the final report.

Image credit: Accion

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