Small Business Still Pessimistic

California’s small business owners have turned decidedly pessimistic, saying that they
plan to cut spending and jobs this year and that they hope government intervention will
help them survive 2009, according to Union Bank’s ninth annual Small Business Survey
released today.

The survey found the highest rate of pessimism, and the lowest rate of  optimism, in its
history. The percentage of pessimistic owners – those who anticipate a decline in profits -
doubled, rising to 24 percent compared to 12 percent last year and just 4 percent in 2007.
While 34 percent of owners say they are optimistic that profits will improve this year, they
are far fewer than the 52 percent who were optimistic last year.

Challenges and Opportunities

Owners stated that their biggest business challenges are the deteriorating state and national
economy and burdensome state and national taxes. Respondents said they need the Obama
Administration to focus most on small business tax cuts, lowering health care costs and creating
tax incentives to encourage small business investment in job creation.

“I’m not surprised with these results; it’s what I’m hearing almost daily from many of our customers
as they work to keep their businesses afloat,” said Joseph Benoit, Union Bank’s small business
banking executive. “At the same time I also see optimism and a thriving entrepreneurial spirit in the
small business community. Like everybody, they’re reaching for some sort of help and looking
perhaps for state and federal assistance to survive.”

The federal economic stimulus package, which was being negotiated during the survey, will likely
offer some of the assistance that California small business owners seek. The White House
estimates that the American Recovery and Reinvestment Act that was signed into law in mid-February
will save or create 369,000 jobs in California, and that an estimated $476 billion of the package will
go to various forms of state, federal and local tax relief, with another $59 billion earmarked
for health care initiatives.

Cost Controls

Still, more small business owners say they will reduce their staff and cut their capital expenditures
in 2009 than at any time in the survey’s history. While 15 percent of owners this year anticipate
adding jobs and growing their staff by an average of 24 percent, that is the lowest figure in the
survey’s history. A full 14 percent anticipate job reductions this year and say they will reduce head
count by an average of 22 percent. That compares to 19 percent who reported layoffs last year,
although only 6 percent anticipated cuts at the beginning of 2008.

The percentage of owners planning to cut their capital expenditures in 2009 nearly doubled,
reaching 22 percent compared to 12 percent last year. Another 60 percent plan to hold capital
expenditures steady, while 17 percent plan an increase – far below the 26 percent who planned
increases last year and 35 percent in 2007.

Owners say they will continue with other cost controls: cutting operating costs (55 percent),
reducing debt (40 percent) and negotiating lower charges from vendors (38 percent).

“Small businesses in California – and across the nation – are facing this downturn by controlling
costs that are within their grasp. That’s a sound strategy for weathering 2009,” said Aida Alvarez,
the former head of the Small Business Administration during the Clinton Administration.

“The year-over-year data show that 2008 was about accepting the downturn. Now 2009 is about
survival. Perhaps 2010 will be about cautious optimism,” said Benoit.

Other highlights of the survey

• Owners say the top reasons for doing business in California are the state’s
  favorable climate, opportunities for growth and family ties. These factors
  have been the top three advantages listed by owners in each of the nine surveys.

• 38 percent reported sales increases in 2008, down from 51 percent in 2007.
  The average increase was 22 percent.

• Another 38 percent reported sales declined in 2008, up from 25 percent the
  prior year. The average decrease was 21 percent.

• 26 percent were able to raise their prices in 2008, while 62 percent reported
  a mix of higher and lower prices charged.

• 46 percent of owners report offering health care benefits to employees, up by
  1 percent from the previous year. Half of these owners say health care costs
  have no effect on their business.

• Of the 54 percent of owners who do not offer health insurance to workers,
  89 percent have never offered the benefit; the balance report dropping the
  benefit five years ago.

• 65 percent say their workers’ compensation premiums did not change in 2008.

• 58 percent offer paid vacation, a drop of 4 percent from the previous year.
  Most report replacing paid vacation with other benefits.

• 43 percent are using recycled materials at the workplace and 31 percent
  installed energy-efficient equipment. Another 29 percent said they’ve taken
  no action toward being greener.

See last's year's results at 03-06-2008 Union Bank Small Business Survey Finds
Concerns About the Economy

About the Survey

Union Bank surveyed more than 2,000 small business owners throughout California
from Jan. 12 – 23, 2009. The businesses, defined for the survey as $15 million
or less in annual sales, were a mix of bank customers and non-customers. Business
owners surveyed employed an average of 13.7 people and have been in business an
average of 17.8 years.