2018 U.S. Bank Small Business Annual Survey · small business market overall, though the smaller the business, the greater the likelihood of banking with a smaller bank. Regional

Market research firm LRW conducted the online survey of 2,737 qualified small business owners across 25 states. Businesses needed to have

less than $10 million in annual revenue, with half of the respondents having under $200,000. The margin of error is less than2 percent on

national results. Deposit products offered by U.S. Bank National Association. Member FDIC. U . S. BAN K

2018 U.S. Bank Small

Business Annual Survey

National Results

Prepared by LRW

March 2018

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Market research firm LRW conducted the online survey of 2,737 qualified small business owners across 25 states. Businesses needed to have less than $10 million in annual

revenue, with half of the respondents having under $200,000. The margin of error is less than 2 percent on national results. Deposit products offered by U.S. Bank National

Association. Member FDIC.

Business Context and Project Overview

U.S. Bank conducts an annual study to

understand the small business owner market, specifically, SBOs’ perceptions of the state of the

economy, their business, and other topical areas. U.S. Bank will use the results for internal strategy

development and PR releases to demonstrate thought leadership.

NOTE ON TRENDABILITY

In 2018, the team changed research partners to

improve the speed and quality of insights and storytelling for PR purposes. Questionnaire

changes were made that improved data quality and allow for deeper insights. Though this is the

9th edition of the Small Business Survey, these changes limit trendability against previous waves.

Moving forward, 2018 will be used as a benchmark to trend against for future waves.

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Understanding the Small Business Landscape

WE ASKED…

How do small business

owners feel about the

economy, their business

banks, employment

conditions, payments and

credit cards, business ethics,

and tax policy?

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Survey Approach

APPROACH

15-minute survey

Conducted 100% online, all devices allowed

2,737 respondents in 25 states Detailed results gathered for Arizona, N.

California, S. California, Colorado, Illinois,

Minnesota, Missouri, Ohio, Oregon, Washington

and Wisconsin

Oversample for Asian, African American, Latino

and LGBT-owned small businesses (results to be

released at a later date)

QUALIFICATIONS

Employed – full-time, part-time, or self-employed

Business owner with business revenue under $10 million

Financial decision maker for business –solely responsible or share responsibility

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Key takeaways

• Small business owners are happy, doing better this year than last, and

expect growth in revenue and company size next year.

• The third of business owners who have exit plans mostly look to transfer

to family or dissolve the business. Most feel confident about a successful

transition within the next 10 years.

• Small business owners’ concerns around financing have created an

environment where cash resources and credit cards are used more often;

top reasons for investment are equipment, marketing, and inventory.

• Though ethical issues are uncommon, small business owners value

ethical behavior and enforce it themselves.

• Small business owners aren’t stressed about tax reform.

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Economic Outlook

54%NATIONAL

70%COMPANY

62%INDUSTRY

57%LOCAL

They are optimistic about…

The challenge of economic uncertainty is at an all time low; a majority of business owners are loving what they do and are optimistic at both company and industry levels. Optimism is particularly high for small businesses with higher revenue and more employees.

Most small businesses increased or maintained revenue since last year, a slight drop from reported revenue growth in 2017*. Many, including newly established businesses, expect even further revenue and profit growth in the upcoming year.

Love what they do

54%

26%

17%

16%

17%

11%

Economic Uncertainty

2018

2017

2016

2015

2014

3 in 5 expect further

economic growth in the

coming year.

$

72%

80%

78%

82%

81%2018

2017

2016

2015

2014

Increase or

maintained

revenue since

last year

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Employment ConditionsAlmost all expect to maintain or grow their business in the upcoming year.

Motivate employees using:

37%37%

Monetary bonuses

27%

24%

21%

20%

16%

15%

14%

Flexible hours

Company culture

Office environment

Monetary bonuses

Education reimbursement

Retirement plan contribution

Overtime pay

Attract talent using:

1 in 10 are

concerned about

limited talent

This positive outlook is resulting in business stability and expansion, with most business owners planning to maintain or increase the size of their workforce in the coming year. Larger businesses expect to grow even further – a reflection of their high optimism.

While some plan to increase compensation for current employees, soft benefits are becoming the preferred method for attracting and retaining talent. This is helping to mitigate any concern about limited candidates while allowing for financial growth.

97%

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Access bankaccounts

Accept payments Make payments

56% 47% 46%

7 in 10Have high trust

in

banking

technology

Technology

Trust in banking technology is high and small business owners have a general desire for omni-channel flexibility.

Though fewer small business owners are on the lookout for technology for their own business, many expect their banks to stay up-to-date with financial service technology. Ease of access to accounts, along with the convenience of making/accepting payments are particularly valued tools. The larger the business, the greater the value reaped from technology integration.

1 in 2Feel their bank needs to

be up to date with

financial service

technology

Technology of High Value

1 in 5are always looking for

new technologies to

help run their business

40%

Top Need from Business Bank

Enabling

banking

through

multiple

channels

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9%

37% 31%

16%7%

1 year or less 2-5 years 6-10 years 11-20 years 21 years or more

Succession Planning

Timing for Exit Plan

A third of small businesses have succession plans. Though sole proprietors and lower revenue businesses more often look to dissolve the business, transferring or selling to a family member is the most common outcome overall; this results in high confidence for a successful transition.

Most SBOs with succession plans plan to exit within the next 10 years. Older business owners who have greater confidence in transitioning their business look to exit sooner than younger owners.

Two thirdsDon’t have an

exit plan in

place

2 in 3Who have an exit plan feel

confident about

transitioning

27%

26%

Transfer/sell to

a family member

Dissolve the

business

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vs. 2017

Large Bank (National) -4

Statewide or Regional Bank +4

Local Community Bank -2

Credit Union +2

Banking Relationships

Branch Banking

8 in 10Report they expect to do some of their banking at physical branch in 5 years (vs. 88% in 2017)

Larger banks continue to dominate the small business market overall, though the smaller the business, the greater the likelihood of banking with a smaller bank.

Regional banks have seen the greatest growth in the small business market since last year. Business owners look to their banks to be ethical, transparent, and to understand their business.

Small business owners value in-person interactions for problem resolution. Strong relationships and trust also drive owners of larger businesses to visit the branch.

4 in 10

want the option to talk with someone in person if there is a problem

Type of Primary Business Bank

48%

19%

18%

12%

Top Banking Needs

32%Demonstrating ethical

behavior

31%Knowing me and

my business

31%Dealing in a

transparent straightforward

manner

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Credit Cards And Payments

While check or cash are most widely accepted, most businesses accept multiple forms of customer payment. Chip cards and magnetic stripes are the most common POS systems used for debit/credit transactions, though the increased desire for technology in banking has brought rise to new “contactless” debit/credit methods, particularly for sole proprietors.

As business credit cards are used often, rewards programs play an important role in their use for small business owners.

Use of Business Credit Card

Point-of-Sale Systems Used

52%

Magnetic

Stripe

56%

Chip card

36%

Contactless

mobile

capable

Feel that Business

Credit Card Rewards are important 8 in 10

3.1Customer payment

methods accepted

76%67%

Check Cash

74% have a

business credit card

53% use it at least

weekly

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Financing and Expenditure

Though a minority of small businesses expect to increase their capital expenditure in the next year, this is most common in businesses with more employees. However, around half of SBOs are still considering financing. Equipment, marketing, and inventory are the top small business expenses that call for financing support.

Given their high penetration, business credit cards, along with personal funding, are top sources for financing. Despite the ease of access to these sources, only 2 in 5 find it easy to borrow money, indicating an opportunity to deliver on an unmet need within the category.53%

Cash Resources /

Personal Funding

Financing Sources

1 in 2 are considering

financing in the next year

45%Business

Credit Cards

17%Buying/

repairing equipment

13%Purchasing

inventory

13%Marketing

1 in 4Expect to increase capital

expenditure in the coming year

2 in 5Find it easy to borrow money

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Ethical Behavior

Business owners recognize that the customer is the key to success, and as such, ethical behavior is critical, especially when it comes to hiring new talent.

Although ethical issues are uncommon, when they do occur, lawyers and/or business partners are likely to be consulted. As ethical issues are relatively more prevalent among larger businesses, these SBOs seek out advice from multiple sources.

However, it’s important to note that business owners, themselves, are in-charge of implementing the actual strategy to promote ethical behavior.

Importance of Ethical

Behavior in Hiring

Sources of Assistance for

Ethical Issues

Ethical Conduct Enforced by Owner

Only 1 in 10 small

businesses have faced

an ethical issue in the

past year

56%Feel the key to business success

is understanding the customer

93%

46%Attorney

16%Business

partner/investor

68%

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Tax Policy

7 in 10 Have an optimistic economic

outlook for their company

19%

30%

37%Positive impact

No impact expected

Negative impact

Few small business owners expect a negative impact from recent tax policy reform. On the contrary, the expected positive impact is resulting in an overall optimistic outlook for businesses.

Very few misunderstand the impact of policy reform on their business, and economic uncertainty represents less of a challenge than ever.

15% are unsure of the impact

on their business

11% see economic uncertainty

as a challenge to their business

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Top Needs

Implications: Meeting Business Owner Needs

Owners are looking to their business bank to simplify fee structures and also to know who they are and to be a trusted advisor.

Technology around account access and payment capabilities are valued the most, and are therefore of particular importance.

Owners also value effective problem resolution at branches, reinforcing the benefit of building lasting relationships.

Needs

Technology

Enables me to bank through

multiple channels40%

Demonstrates ethical

behavior32%

Knows me and my business 31%

Deals in a transparent

straightforward manner31%

Unmet Needs

Nothing, as my business

bank provides me with everything I need

46%

Simplifies fee structure 10%

Helps with my business

succession/exit strategy9%

Provides financial advice 9%

56%

Access bank

accounts

47%

Accept

payments

46%

Make

payments

43%

Want the option to talk with someone in person if there is a problem

51%

Feel their bank needs to be up to date with financial service technology

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53%Cash Resources /

Personal Funding

Implications: Advice and EducationBanks are infrequently consulted for business / financial advice. However, there is concern about ease of borrowing, indicating opportunity to play an advisory role to small business owners.

There are also knowledge gaps when it comes to financing; most small business owners are using cash and credit cards. Consider education around more beneficial financing options to build greater trust.

As top uses for financing are equipment, marketing, and inventory, indicating that business are focusing on lower cost expansion items instead of large capital expenditures.

1 in 10 turn

to bankers

for business

advice

1 in 4find it difficult

Ease of Borrowing

Financing Sources

Uses for Financing

45%Business

Credit Cards

55%No financing

planned

17%Buying/

repairing

equipment

13%Purchasing

inventory

13%Marketing

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Summary

Key insights Digging deeper

EconomicOutlook

SBOs are more optimistic about their local view (i.e.,

their company and industry) than the overall economy. At a wider view, perceptions of state versus national

conditions differ by state.

Optimism at all levels of the economy is particularly

strong for large and high-revenue businesses.

Business Profiling

Banks are infrequently consulted for business /

financial advice. There is concern about ease of borrowing, indicating opportunity to educate SBOs on

more beneficial financing options, which in turn can

encourage perceptions of banks as trusted advisors.

Because new, large, and high-revenue businesses

expect an increase in credit needs in the next year, they may have the greatest receptivity towards

communications and education coming from financial

institutions.

Technology / Social Media

Technology has the greatest value for payment

methods and account access in the small business market. Facebook is the most used and most effective

social platform.

New and large businesses are more receptive to

integrating technology and social media into their strategy.

SuccessionPlanning

Transferring or selling / dissolving the business are top

outcomes of SBOs’ exit plans and a third of the market currently has an exit plan.

Different firmographic profiles have different needs

when it comes to succession planning – large, high-revenue businesses look to transfer, while smaller,

lower revenue businesses plan to dissolve.

OwnerAttitudes

Most SBOs have passion for what they do, and believe

that understanding the customer is key to succeeding as a small business. Most are risk-averse, don’t

connect with other SBOs, and don’t seek out

technology solutions for their business.

Larger businesses are more established, while newer

SBOs look to grow their business – they seek out new technology, connect with others, and are more willing

to take risks.

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Summary

Key insights Digging deeper

Banking Relationships

There is room to improve on helping SBOs with their

banking needs to build greater trust by simplifying fee structure, improving the in-branch experience, and

staying up-to-date with technology.

Satisfaction with their business bank is lower for sole

proprietors than other business sizes. Sole proprietors have greater trust in face-to-face transactions, so in-

branch experience is critical for this group.

Employment Conditions

Small businesses are focusing on increasing

compensation for current employees, while opting for “soft” benefits to motivate and attract talent to grow

the business.

Large and high-revenue businesses that are most likely

to grow in size and most concerned about candidates use more benefits to motivate and attract talent.

Business Credit Cards /

Payments

Rewards programs associated with business credit

cards are important. Small businesses typically accept multiple forms of customer payment, with newer POS

technology being increasingly adopted.

There is opportunity to capture small and lower

businesses who don’t have business credit cards through rewards programs. Though large businesses

accept more types of customer payments overall, credit

and debit methods are most prevalent.

EthicalBehavior

Though ethical issues are relatively uncommon, ethics

plays an important role in small businesses. Interaction with clients is the area where these issues

are most prevalent.

Large business owners use more sources to support

with ethical issues and are likely to have a dedicated role promoting ethical behavior because they

experience more ethical issues.

TaxPolicy

Many SBOs expect a positive impact to their business

as a result of recent tax policy reform.

The smaller the business, the lower the expectation of

positive impact from tax policy reform. Opportunity exists to educate and guide these SBOs who are less

optimistic about the impact.

Documents

2018 U.S. Bank Small Business Annual Survey · small business market overall, though the smaller the business, the greater the likelihood of banking with a smaller bank. Regional