Though their concerns about credit availability have stabilized, fewer U.S. small business owners expect revenues, cash flow, capital spending and hiring to increase over the next 12 months, according to the latest Wells Fargo/Gallup Small Business Index, conducted in July. The lower expectations for business prospects contributed to a 17-point decline from April in the survey’s index of business owner confidence, finishing at (-28), the lowest score since the survey’s inception.

“The weakened economy has been particularly hard on small businesses and our bankers are making every effort to help them through this period with financial solutions and guidance,” said Marc Bernstein, executive vice president and Wells Fargo’s head of Small Business. “We grew small business lending by 30 percent over the previous quarter and - in an effort to increase approvals - took a 'second look' at declined applications, while continuing to apply our disciplined credit and underwriting principles.”

Credit conditions improved modestly for businesses in July with 32 percent of respondents reporting that credit was “somewhat” or “very difficult” to obtain over the past 12 months, down from 36 percent in April. Yet business owners expect credit to remain tight over the next 12 months as 42 percent expect credit to remain “somewhat” or “very difficult” to obtain, the same percentage reported in April and January 2010.

"Slower consumer spending growth appears to be weighing on small business confidence," said Dr. Scott Anderson, Wells Fargo senior economist. "Small businesses are scaling back on hiring and capital spending plans in the third quarter and remain concerned about the overall financial health of their companies."

The Index is the sum of “present situation” and “future expectations” of small business owners for six key measures, including financial situation, cash flow, revenues, capital allocation spending, job hiring and credit availability. The “present situation” score declined four points to negative 26 while the “future expectations” component declined 13 points in July to (-2) - the first negative “future” score in the history of the index.

Of the six key measures, the following measures served as major drivers of the Index score during this survey:

Future Expectations:

- Revenues – 38 percent expect their companies’ revenues to increase a lot or a little over the next 12 months, down from 48 percent in Q2 2010

- Cash Flow – 43 percent expect their companies’ cash flow to increase, down from 53 percent in Q2 2010 (lowest point in survey history)

- Capital Spending – 37 percent expect their companies’ allocation for capital spending to decrease a lot or a little over the next 12 months, up from 29 percent in Q2 2010

- Hiring – 13 percent expect the overall number of jobs at their companies to increase, down from 18 percent in Q2 2010 (lowest point in survey history)

Present Situation:

- Cash Flow – 36 percent rated their cash flow as somewhat or very good for the past 12 months, down from 42 percent in Q2 2010 (lowest point in survey history)