In Search of Solid Ground: Understanding the Financial Vulnerabilities of Microbusiness Owners (Full Report)
Author(s): Lauren Williams & Kasey Wiedrich
Date Published: April 2014
File Type: PDF
Published by CFED
Though microbusinesses contribute significantly to nationwide economic activity and their owners’ household balance sheets, many still struggle to make ends meet or build long-term wealth. Today, little is known about how the typical microbusiness manages its finances, the major financial challenges they face or which components of financial capability lead them to business success. To begin to bridge this gap in understanding, CFED launched a study in 2013 with support from MasterCard’s Center for Inclusive Growth.
This study examined the key financial product, service and capability needs of low- and moderate-income microbusiness owners and shed light on the extent to which they are being met by current market offerings. The study is based on a set of surveys that document business owners’ greatest financial challenges, the types of financial products and services they use and the aspects of financial management with which they struggle. In total, 716 microbusiness owners from 43 states completed the online survey and 214 respondents participated in the phone survey. The findings reveal that microbusiness owners’ business and personal finances are often inextricably tied, and that they are dealing with significant financial vulnerabilities that reach far beyond access to credit. Among the main findings:
• Cash flow problems—lacking sufficient liquidity to cover business expenses at the time they arise—are key drivers of financial insecurity for both microbusiness owners and their households.
• Remarkably low short- and long-term savings levels compound these challenges even further, preventing microbusiness owners from mitigating income-expense mismatches, weathering emergencies or meeting long-term goals that contribute to greater financial stability.
• Difficulty accessing appropriate financial products and services, especially credit, also compounds microbusiness owners’ financial security: those that are vulnerable for other reasons—young startups, less formal businesses, those generating lower household incomes for their owners, those with fewer employees and minority-owned businesses—are more likely to experience difficulty accessing financial products that suit their needs.
The study’s findings help tell a more nuanced story about what constitutes financial capability and offer new insights into the types of solutions that might resolve microbusinesses’ greatest financial challenges.
Click here to read a summary of this report.