Access to Credit Remains a Challenge for Entrepreneurs Despite Improving Economy

Annual Kauffman Foundation/LegalZoom survey of startup owners reveals an increasingly favorable entrepreneurial environment even with lingering credit issues

(KANSAS CITY, Mo.) Feb. 24, 2015 – Though economic unpredictability is waning, startup business owners still face a disquieting lack of access to credit, according to the third annual Kauffman Foundation/LegalZoom survey report titled "Challenges Facing New Entrepreneurs in 2014."

In the 2014 survey conducted with 1,242 companies recently incorporated through LegalZoom, 45 percent of new companies cited lack of credit access as a business challenge. This number is unchanged from 2013 and 2012, perhaps indicating that the issue lingers from the Great Recession and is largely immune to the overall economic recovery.

Despite the lack of credit remaining unchanged, other business challenges have consistently diminished over the past two years as the economy moves toward recovery. The percentage of respondents who said they were affected by unpredictable business conditions fell to 46 percent in 2014 from 57 percent in 2013. Those who reported no business challenges rose to 49 percent in 2014, up from 37 percent in 2013.

"Overall, the economic news generally is good," said Dane Stangler, vice president of Research and Policy at the Kauffman Foundation. "Yet, entrepreneurship rates remain on a 30-year-long decline. Lack of access to credit alone isn't enough to explain why entrepreneurship is falling. But it seems to have some impact, and more study is needed to determine exactly what that impact is."

The LegalZoom survey also questioned startup owners about the effect of government policies. Many entrepreneurs – nearly 41 percent – said that no government policies at the state-level impeded their business growth. Thirty percent named tax-related issues, and 14 percent cited licensing regulations and fees.

"Though we've yet to see improvement on the issue of limited access to credit, we are witnessing mitigated issues on other fronts," said John Suh, CEO of LegalZoom. "New business owners feel confident they are starting their business in a predictable economy, and expect fewer business challenges – an environment ripe with opportunity for entrepreneurs."

Half of respondents had no problems to report with government regulations at any level. Of those who had encountered at least minimal problems with regulations at any level of government, 41 percent had experienced tax-related challenges, while about 31 percent had experienced problems with "operational, such as licensing" issues. Most of those concerns related to state (almost 46 percent) and federal (nearly 39 percent) regulations. Local regulations caused problems for only about 16 percent of the respondents.

These results point out the need for more research into the effects of occupational licensing on entrepreneurship, as well as for tax-complexity reform for businesses.

Overall, the LegalZoom survey respondents were 67 percent male and 33 percent female. About half were in their 30s and 40s – the ages by which entrepreneurs likely have acquired the work experience, business networks and financial capital instrumental in starting successful companies. Nearly 40 percent of them had previously started at least one business.

About LegalZoom
LegalZoom is the nation's leading provider of personalized, affordable online legal solutions for families and small businesses. Founded more than 12 years ago by attorneys with experience at some of the top law firms in the country, LegalZoom has helped over two million Americans become protected with binding legal documents. Although LegalZoom is not a law firm, it can help people access an attorney through its legal plans. The company has offices in Austin, TX, Glendale, CA, Mountain View, CA, and Melton Mowbray, UK. For more information, visit www.legalzoom.com.