Small Business Cash Flow Trend Report
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About the Trend Report
Through an ongoing partnership, OnDeck and Ocrolus have released the third iteration of the Small Business Cash Flow Trend Report. OnDeck is the leading small business lending company at Enova, and Ocrolus is a document AI and cash flow analytics platform for lenders. The report is based on two inputs:
- Quarterly survey responses from 413 small businesses with working capital loans from OnDeck across all regions. These businesses generally have fewer than 30 employees and less than $10M in revenues.
- Cash flow data from over 2.3 million small business applications for working capital financing during a 13-month period.
The results from the Q2 2024 report revealed new insights regarding the health of small businesses as well as continuing trends from the two previous quarterly reports.
Q2 2024 Key Findings
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Point 1
Optimism and Growth. Small business owners remain optimistic with 91.5% anticipating moderate to significant growth over the next six months, slightly lower than the 93% reported in Q1.
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Point 2
Payment Dynamics. For small businesses, the percentage of revenue received by check decreased to 17%, while the acceptance of alternative and digital payment methods continues to grow. Survey results and cash flow data show small businesses must meet a range of consumers’ payment expectations.
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Point 3
Cash Flow Management and Access to Credit. Small businesses are becoming less reliant on traditional banks for capital. Nearly 75% of small businesses reported bypassing a traditional bank loan, seeking out alternative lenders as their primary funding option — up from 71.6% in Q1.
Optimism about business growth remains robust.
In Q2 of 2024, 91.5% of small businesses expressed optimism about moderate to significant growth over the next six months — consistent with broadly reported trends. While this is slightly lower than the 93% reported in Q1, it remains robust.
Future Growth Expectations
The most optimistic sectors include professional and technical services (95.4%), accommodation and food services (93.3%) and healthcare (92.5%), while the manufacturing sector displayed the least optimism with 83.3% still expecting growth.
Over the next six months, more than one third of small businesses (38.3%) plan to increase their number of employees, with professional and technical services leading the way at 50%. But it’s not just about adding headcount, it’s about finding the right talent. A notable 42% of small businesses listed hiring qualified staff as a top concern.
Median Revenue by Month
Historically, the revenue figures for the end-of-quarter month adjust up by 5% due to new loan applications providing retrospective data; the June 2024 revenue has been adjusted in the figure above accordingly.
Businesses report that they have not significantly raised prices in response to inflationary pressures. Loan applications processed through Ocrolus for a variety of lenders showed slightly lower median revenues, influenced by elements such as industry type and acquisition channel. This suggests that Q3 2024 may be a decision point for many businesses as they determine whether growth expectations are being met — particularly for those businesses with high seasonal revenues in Q4.
Payment modernization enhances cash flow.
The use of alternative and real-time payment methods continues to grow, reflecting small business efforts to meet a wider range of customer expectations while improving business cash flows. 61% of businesses reported accepting alternative and real-time payment methods in the Q2 customer survey, up from 55% in Q1 of 2024.
Applicant cash flow data also reflects this increase, with revenues coming from alternative and real-time payment methods increasing from 24% in Q2 of 2023 to 28% in Q2 of 2024. This shift indicates an increasing willingness of small business owners to meet customer preference for more flexible and convenient payment options.
While customers haven’t moved away from paying by check entirely, cash flow data shows a decrease in check payments as a percentage of revenue, falling from 20% in Q2 of 2023 to 17% in Q2 of 2024. This suggests that businesses continue to shift to meet a wide range of customer expectations when it comes to payment type.
Growth of Alternative Payments Methods
Cash flow data shows a 10% increase in alternative and real-time payments from Q1 to Q2 of 2024, and a 14% increase when comparing June 2023 to June 2024.
Survey results show the percentage of small businesses accepting alternative payment methods are up 12% from Q1 of 2024.
Cash flow management and access to credit.
Effective cash flow management remains a priority for small businesses. In Q2 of 2024, 71% of businesses reported having enough cash to cover at least one or more months of operating expenses, similar to Q1’s 70%. The reliance on business lines of credit (LOC) has increased, with 61% of businesses using this tool in Q2, up from 56% in Q1.
Access to credit continues to pose challenges for small business owners across sectors. The primary reason for not applying for bank funding is the hassle of paperwork, cited by 50% of respondents. Among those who did apply (25%), one-third were denied, highlighting ongoing difficulties in securing loans from traditional banks. This is similar to the Q1 findings, where nearly 40% of businesses operating for over 20 years reported loan denials from big banks.
Regional Findings
Variations by region play a significant role in small business performance. Boston led the nation with a 14.25% year-over-year increase in payroll as a ratio of revenue, while Philadelphia experienced the largest decrease at 5.18% year-over-year. No region reported significant decreases in the second quarter.
Payroll-to-Revenue Ratio
Year-over-year applicant cash flow data out of the Cleveland area saw the most significant increase in the revenue-to-expense ratio, rising on average by 1.3%, while the Boston area was mostly flat to slightly down by less than 1% on average. These regional differences reflect varied economic conditions and challenges faced by small businesses across the country.
Revenue-to-Expense Ratio
Methodology
OnDeck analyzed survey responses from 413 current customers, who completed the survey June 23 - 28, 2024. Please note: we have not verified this data or survey responses. It may contain errors or inaccuracies, and we make no representations or warranties as to its reliability, accuracy or applicability. Customers received an incentive for completing the survey.
Purpose
The index is designed to reflect the cash flow, financial health and liquidity of small businesses in the United States. Through tracking of this index made possible by the unique combination of data available to Ocrolus and OnDeck, it will be possible to understand the trends affecting small businesses, the economic environment in which they operate and their access to capital.
Data
Ocrolus receives data on hundreds of thousands of small businesses each month as part of their applications for credit. The data consists of transactional bank data in the form of bank statements or digital bank data feeds, generally comprising the most recent 3 - 6 months prior to the time of application. Ocrolus then uses its proprietary transaction tagging and analytical capabilities to generate a detailed set of cash flow attributes for each business, thereby facilitating a lender’s understanding of its financial health and ability to service additional debt. The index release is comprised of small business loan application data from the previous 13 months. Previous period figures often change slightly as new loan applications provide retrospective data.
Filtering/Exclusions
The data are filtered to include only applicants within the 50 U.S. states.
Calculations
For each small business, for each calendar month, Ocrolus calculates revenue, credits, debits, expense, payroll, non-sufficient-funds transactions, proceeds from lenders, payments to lenders and the use of alternative payment methods. The data set is summarized into the following time series data for the past 13 months:
- Median revenue
- Median expense
- Median credits and debits comparison
- Median revenue-to-expense ratio
- Median payroll outflow
- Payroll-to-revenue ratio
Q1 2024 Key Findings
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Point 1
Optimism and Growth. A large majority of small businesses continue to feel optimistic about business growth opportunities over the next 12 months, with 93% expecting moderate or significant growth, a slight uptick (1%) from Q4 2023.
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Point 2
Financial Performance. Consistent with seasonal trends, revenue has decreased from its peak in Q4 2023, offset by decreasing expenses, resulting in a slightly higher revenue-to-expense ratio. Businesses continue to invest in employees, resulting in the payroll-to-revenue ratio increasing slightly to 19.5% in Q1 2024.
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Point 3
Cash Flow Management. Businesses are managing cash flows through a variety of approaches, most commonly using a business line of credit (56.2% of businesses), while many also report delaying payment to themselves and family members until other bills have been paid (43.1%).
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Point 4
Access to Credit. Banks appear to be limiting their lending, with nearly 40% of small businesses that have been in operation for over 20 years reporting they were denied a loan from a big bank. The percentage of transactions moving through payment apps instead of traditional payment methods continues to increase, with 26% of businesses reporting inflows from Venmo, Zelle or CashApp, which is an all-time high for this report.
Small business owners continue to feel optimistic about business growth.
The latest report shows optimistic business owners operating in a complex small business landscape, with variations by region in the U.S. and industry. Overall, median revenue for small business has come down from Q4 in keeping with seasonal patterns.
Median Revenue by Month
93% of small business owners anticipate moderate or significant growth over the next year, compared to 92% in Q4 of 2023.
72% of small business owners report having cash on hand to cover up to two months of operating expenses.
Payroll as a percentage of revenue was 19.5% in Q1 2024 — a year-over-year increase from 18.5% in Q1 2023.
Payroll-to-Revenue Ratio
A closer look at the data reveals that immigrant-owned businesses expressed the highest levels of optimism, with 56% of these entrepreneurs expecting significant growth over the next 12 months. Minority-owned businesses also show a confident outlook, with 41% anticipating considerable growth within the same timeframe. This optimism isn't just confined to one area — it's geographically widespread. In particular, Dallas and Boston stand out, with 48% and 41% of their respective small business owners forecasting significant growth, positioning these cities as hotspots of entrepreneurial confidence.
Future Growth
Inflation continues to be the top concern for business owners, followed by maintaining cash flow.
Business owner optimism about future growth is tempered by concerns about having the cash flow needed to support growth due to seasonal trends, inflation impacts on costs and access to credit. Managing cash flows is a major part of operating a small business, and business owners report they have a set of tactics they use to ensure they can pay their bills and invest in growth. The number one tactic is a business line of credit. In addition to using lines of credit to supplement cash flows, small businesses report using tactics like delaying payments to family and friends, paying only the minimum required payments on credit cards or using personal lines of credit to fill timing gaps in cash flows.
Small businesses prioritize access to flexible credit to support growth.
Many small businesses encounter significant barriers when dealing with loans from traditional banks. Over 40% of businesses report using loans to supplement cash flow, but according to the latest report, over a third of small businesses (34%) who applied for a loan from a bank reported that the application process was too difficult. An equivalent proportion of respondents said it takes too long and others said they didn’t even try because of the low likelihood of approval.
High rejection rates from traditional banks continue to cause headaches, even for established businesses. Roughly 40% of businesses that have been operational for more than 20 years still face loan denials from banks. This high rejection rate persists regardless of the longevity and presumably the stability of the business, suggesting a disconnect between the needs of established small businesses and the lending practices from traditional banks.
The landscape of small business financing continues to evolve in the face of bank pull-backs, and a significant number of small business owners (34%) expressed a preference for non-bank alternative lenders, noting the speed, ease and flexible financing terms they provide. These attributes are especially valued in an environment where immediate financial solutions are often needed to capitalize on business opportunities or manage unexpected challenges.
34% of small business owners prefer alternative lenders for their speed, ease and flexible financing terms.
40% of businesses open for more than 20 years face loan denials from banks.
Examining Demographic Data
The small business landscape is diverse, reflecting the cultures and perspectives of communities across the country.
Many family-run small businesses serve as the backbone of this landscape, and the report shows these businesses aren’t just passion projects or built out of necessity — they’re also investments in the future. According to the report, nearly all (92%) of family-owned businesses are first-generation business owners, and a majority (58%) plan to pass the business on to a family member in the future.
92%
of family-owned businesses are first-generation business owners.
58%
plan to pass the business on to a family member in the future.
Small businesses tend to operate under modest revenues, with nearly all having annual revenues under $10M. Veteran-owned businesses also have an important presence and large impact in the small business landscape, as this group had the highest percentage (26%) of self-reported annual revenues between $1M and $10M.
- Nearly all small businesses had annual revenues under $10M.
- Veteran-owned businesses had the highest percentage (26%) of self-reported annual revenues between $1M and $10M.
Regional Findings
As noted, there are significant variances by region of the country in small business outlook and cash flow trends. In particular, Dallas and Boston small business owners are the most optimistic in the country, with 48% and 41% of their respective small business owners forecasting significant growth, positioning these cities as hotspots of entrepreneurial confidence.
In Boston, small business revenue in the first quarter rose by 3% (quarter-over-quarter) but was offset by a 1.62% increase in expenses, resulting in a slight (-0.29%) revenue-to-expense ratio decrease compared to Q4 2023. In Dallas, small business revenue dropped by 4.59%, with a similar expense decrease of 4.58%, 14.88% resulting in a slight revenue-to-expense ratio decrease (-0.32%).
Payroll-to-revenue ratio has risen the most in Boston (+15.26%) and fallen the most in Minneapolis (-18.94%).
Changes in payroll seem to have a big effect on how profitable small businesses are in different cities. In Kansas City, the ratio of revenue to expenses decreased the most, but in Minneapolis, it increased the most.
Revenue-to-Expense Ratio
Methodology
OnDeck analyzed survey responses from 422 current customers, who completed the survey March 21 - 31, 2024. Please note: we have not verified this data or survey responses, it may contain errors or inaccuracies, and we make no representations or warranties as to its reliability, accuracy or applicability. Customers received an incentive for completing the survey.
Purpose
The index is designed to reflect the cash flow, financial health and liquidity of small businesses in the United States. Through tracking of this index made possible by the unique combination of data available to Ocrolus and OnDeck, it will be possible to understand the trends affecting small businesses, the economic environment in which they operate and their access to capital.
Data
Ocrolus receives data on hundreds of thousands of small businesses each month as part of their applications for credit. The data consists of transactional bank data in the form of bank statements or digital bank data feeds, generally comprising the most recent 3 - 6 months prior to the time of application. Ocrolus then uses its proprietary transaction tagging and analytical capabilities to generate a detailed set of cash flow attributes for each business, thereby facilitating a lender’s understanding of its financial health and ability to service additional debt. Each index release is comprised of small business loan application data from the previous 12 months.
Filtering/Exclusions
The data are filtered to include only applicants within the 50 U.S. states.
Calculations
For each small business, for each calendar month, Ocrolus calculates revenue, credits, debits, expense, payroll, non-sufficient-funds transactions, proceeds from lenders, payments to lenders and the use of alternative payment methods. The above data set is summarized into the following time series data for the past 12 months:
- Median revenue time
- Median expense
- Median credits and debits comparison
- Median revenue-to-expense ratio
- Median payroll outflow
- Payroll-to-revenue ratio
Q4 2023 Key Findings
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Point 1
Most small businesses are feeling optimistic about growth in 2024 and their ability to expand over the next 12 months.
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Point 2
A steady increase in revenues supports this optimistic outlook for growth in 2024.
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Point 3
As inflation cools, businesses are looking to improve profitability and available cash as a way to support growth.
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Point 4
Hiring qualified staff remains a concern for over half of small businesses.
“OnDeck is focused on supporting small business growth with the working capital they need,” said Jim Granat, co-president of OnDeck, the small business lending company at Enova. “This cash flow trend report shows that businesses are poised for growth and they have a positive outlook for the future. As small business owners know — cash flow is a truth-teller of the financial health of a business.”
92%
of small businesses say they're hopeful and expect moderate or significant growth in 2024.
80%
of small business owners say inflationary pressures are still a concern, despite recent cooling.
Small businesses are feeling optimistic and anticipate growth, while managing working capital needs.
Nearly all small businesses are feeling positive about the future and expect their business will experience moderate or significant growth in the next year.
Growth expectations are generally consistent across the country, with 25% of businesses expecting significant growth over the next 12 months. In Boston, Minneapolis and St. Louis, growth expectations are more muted, averaging just 16%.
Loan application data shows 25% growth on average in median revenue over the past 18 months, supporting small businesses’ optimistic outlook.
Cash flow data found that along with increased revenue, average daily balances were increasing for small business loan applicants’ operating checking accounts, indicating businesses are aligning resources to support their optimism on growth.
Revenue
Despite cooling, inflation remains a concern.
While inflation has cooled in recent months, businesses continued to feel its impact on expenses in the last quarter of 2023. Business owners are focused on business margins and generating the cash flows needed to meet current obligations and manage growth. As a result, they must carefully consider operating expenses, hiring practices and expansion plans. This is especially important as small business owners closely manage cash flows and often rely on access to credit to bridge the gap between current expenses and future revenue.
Step 1
Inflation's impact on cash flow is slowing.
Small businesses are concerned about the trailing impact of inflation on their operating expenses, with margins starting to improve after having absorbed cost increases in many areas — supplies, transportation, equipment, and even utilities. To combat inflation, the Federal Reserve has aggressively increased interest rates, leading traditional lenders and banks to pull back on lending for small businesses. However, they have been able to turn to experienced specialty lenders to fill the gaps in the capital needs, as evidenced by application rates.
Working capital is perhaps the most important part of starting and expanding a business, as it supports paying the bills, hiring or expansions in offerings that can grow the business. Our survey shows that 70% of small businesses have less than four months of operating cash (they would like more), and the cash flow data shows that for most businesses, 90% of revenue is consumed by operating expenses (before interest, debt repayment and taxes).
Expenses consume more than 90% of revenue for small businesses.
70% of small businesses have less than four months of cash available to cover operating expenses and support future growth.
Revenue-to-Expense Ratio
Step 2
Hiring qualified staff continues to be a challenge.
Having qualified staff is a critical component of long-term growth. The strong labor market has led to employee shortages and higher salaries across a number of industries, causing a majority of small businesses to express concerns over their ability to hire and retain qualified employees.
Regional findings
Over 65% of small businesses in major metropolitan areas — including Boston, Chicago, Cleveland, Kansas City, Philadelphia and Minneapolis — were moderately, very or extremely concerned about hiring qualified staff.
Ocrolus findings
Ocrolus data shows total revenue spend on payroll steadily increased over the 18-month period.
Over half of small businesses expressed concern about being able to hire qualified staff.
Hiring qualified staff was most concerning (70%) for small businesses in the accommodations, food and construction industries.
Payroll-to-Revenue Ratio
Methodology
OnDeck analyzed survey responses from 499 current customers, who completed the survey Dec. 12 - 15, 2023. Please note, we have not verified this data or survey responses, it may contain errors or inaccuracies, and we make no representations or warranties as to its reliability, accuracy, or applicability. Customers received an incentive for completing the survey.
Purpose
The index is designed to reflect the cash flow, financial health and liquidity of small businesses in the United States. Through tracking of this index made possible by the unique combination of data available to Ocrolus and OnDeck, it will be possible to understand the trends affecting small businesses, the economic environment in which they operate and their access to capital.
Data
Ocrolus receives data on hundreds of thousands of small businesses each month as part of their applications for credit. The data consists of transactional bank data in the form of bank statements or digital bank data feeds, generally comprising the most recent 3 - 6 months prior to the time of application. Ocrolus then uses its proprietary transaction tagging and analytical capabilities to generate a detailed set of cash flow attributes for each business, thereby facilitating a lender’s understanding of its financial health and ability to service additional debt. Each index release will include data from the prior 18 months; the first index will cover July 2022 through December 2023 and comprise data from approximately 3 million small business applications.
Filtering/Exclusions
The data are filtered to include only applicants within the 50 U.S. states.
Calculations
For each small business, for each calendar month, Ocrolus calculates revenue, credits, debits, expense, payroll, non-sufficient-funds transactions, proceeds from lenders, payments to lenders and the use of alternative payment methods. The above data set is summarized into the following time series data for the past 18 months:
- Median revenue time
- Median expense
- Median credits and debits comparison
- Median revenue-to-expense ratio
- Median payroll outflow
- Payroll-to-revenue ratio
- Median bank balance
Disclaimer
The content in this report is for informational purposes only and should not be considered legal, accounting or tax advice. Any statements or information within this report are as of the date published and do not necessarily reflect the opinions of OnDeck, Ocrolus or any of their affiliates. The information in this report should not be relied upon as a substitute for independent research. OnDeck and Ocrolus do not warrant that the material contained herein will continue to be accurate nor that it is completely free of errors when published. Readers should verify statements before relying on them.