A new report from the Federal Reserve Bank of New York examines small businesses in Puerto Rico.
In the United States, small businesses are the strongest source of job creation, accounting for 55% of all jobs and 67% of net new jobs since the recession. Could Puerto Rico’s small businesses drive improvements in the territory’s economy?
In 2015, about 60% of small businesses in Puerto Rico reported that they were profitable or broke even. The majority of these businesses employed fewer than ten people and had revenues of $250,000 or less. 38% had revenues of $50,000 or less. More than half had seen falling revenues in 2015 and 41% — the largest number of answers for this question — reported that managing cash flow was their top concern.
Slightly more than 40% of the companies surveyed had 0-1 employees; only 4% had 50 workers or more. In the U.S. as a whole, about 75% of small businesses fall into the “non employer” category, but about 17% employ 20-99 workers.
Puerto Rico’s debt crisis did not discourage these businesses from trying to borrow money. More than half had applied for loans during the year, 43% needing additional funds to cover operating expenses. Of those that applied for loans, 39% received the funds they requested and 31% had received no funds. 45% of those surveyed said that better access to credit would be one of the most helpful improvements for their businesses.
However, nearly half of the businesses did not apply for credit, 37% because they did not want to be in debt and 23% because they didn’t need additional funding. 14% of businesses which didn’t apply for credit said they did not apply because they thought they would be refused.
Business growth and training opportunities was the other topic covered in the survey. Two particular areas of opportunity for growth stood out:
- 81% of the businesses surveyed had no revenue from exports.
- 79% had no income from online sales.
According to the most recent National Small Business Association technology survey, only 28% of U.S. small businesses used e-commerce as of 2013, so it could be said that small businesses as a whole are (or were, as of 2013) missing that opportunity. However, 16% of the small businesses in Puerto Rico that have online sales report that the portion of their revenue that comes from online sales is less than 25%.
According to the U.S. Census Bureau, 97% of all export firms in the U.S. as a whole are small businesses.
According to the survey, Puerto Rican respondents wanted training was in selling to the federal government. Puerto Rico has little participation in federal contracting, at least in part because as a territory the Island has only a small voice in Congress.
There were about half a dozen more areas in which respondents felt they needed training, including managing cash flow, preparing financial statements, and managing staff.
Much discussion recently has centered around strategies for strengthening businesses and jobs in Puerto Rico in order to set the economy on a positive path. Small business owners in Puerto Rico listed a number of changes they thought would be beneficial for their businesses:
- Access to credit
- Streamlined business regulations
- Greater access to qualified workers
- Access to export markets
Ability to conduct business within the US legal and regulatory framework
The Congressional Task Force on Economic Growth in Puerto Rico has a deadline of December 31st to submit its recommendations. It is possible that small business growth could be a part of this proposal.