America’s small business owners expressed higher economic hopes in January, largely due to increased expectations that conditions for their own businesses would improve in the next six months, according to the Discover^® Small Business Watch^SM. The Watch index jumped to 85.5 from 77.0 in December.

More small business owners are planning to increase business development spending over the next six months, with 25 percent noting they will spend more on activities such as advertising, inventories and capital expenditures. This number is up from 18 percent in December. Further, 28 percent plan to make no changes, while 45 percent will decrease spending, down from 51 percent in December.

“We measure small business insights and expectations about the larger economy as well as on the local level, so it’s good to see confidence rise on Main Street,” said Ryan Scully, director of Discover's business credit card. “January showed us the first month-to-month increase since August in the number of small business owners who plan to increase spending on business development. Self-investment is a healthy sign in the small business economy.”

Other January Indicators:

• 29 percent of small business owners see conditions for their own businesses getting better in the next six months, an improvement from 22 percent in December and 19 percent in November; 43 percent see conditions getting worse, 23 percent expect things to stay the same, and 4 percent aren’t sure.
• The number of small business owners who think the economy is getting better rose to 31 percent in January, up from 25 percent last month; 46 percent see the economy getting worse, down from 49 percent in December; 18 percent see the economy staying the same and 4 percent are not sure.
• 8 percent rate the economy as good or excellent, up from 4 percent in December; 34 percent rate the current economy as fair, and 58 percent rate it as poor.
• 51 percent of owners have experienced cash flow issues in the past 90 days, unchanged from December; 46 percent of owners have not experienced cash flow issues, and 3 percent are not sure.

HEALTH CARE POLL: Majority of Small Business Owners Aren’t Looking Forward to Health Reform

When asked how their health insurance situation would be affected by health care reform, 58 percent of small business owners say it will become worse, 23 percent think their situation will be better, 15 percent see no impact and 4 percent are not sure.

Eighty-one percent of small business owners say they do not offer health insurance to their employees, down from 85 percent in January 2009, but still above the 77 percent in January 2008 and 74 percent in January 2007. Among owners who offer health insurance, 29 percent have considered discontinuing it because of the cost.

“Health care continues to be a concern for most small business owners as they try to balance cost with other business obligations,” Scully said. “In terms of relief from the pending health insurance reform legislation, they aren’t holding their collective breath for anything to change soon.”

Other health care findings:

• 21 percent of owners are uninsured, down from 25 percent in January 2009. Of those who are insured, 34 percent of owners receive their coverage from another family member’s plan, 32 percent purchase it separately and 12 percent get it through a company plan.
• When asked if any of their employees go without health insurance, 28 percent of owners say yes, while 53 percent say no, and 19 percent are not sure.
• 68 percent say that it is “very difficult” or “somewhat difficult” to obtain affordable health insurance.
• 62 percent of owners say that the cost and concerns over health care will prevent some people from starting a small business.
• 60 percent say that the cost of health care has an impact on their business, with 34 percent saying that the impact is “major.”

FUNDING POLL: 43% of Small Business Owners Have Funding Needs

Forty-three percent of small business owners say that they will need to raise money this year in order to keep their business going, up from 32 percent in January 2009. Forty percent will not have to raise funds for their business, while 17 percent are not sure.

For those who need to find funding, owners chose the following as their first choice of a source:

• Personal savings, 25 percent, up from 19 percent in January 2009
• Bank loan, 20 percent, up from 18 percent in January 2009
• Friends or family, 13 percent, down from 20 percent in January 2009
• Home equity loan, 9 percent, up from 1 percent in January 2009
• Credit cards, 4 percent, down from 9 percent in January 2009
• Some other way, 19 percent, down from 24 percent in January 2009
• Not sure, 10 percent

The views and opinions expressed by small business owners and consumers who participate in the Small Business Watch survey are their own and do not necessarily reflect those of Discover Financial Services or its affiliates.

About the Small Business Watch

The Discover Small Business Watch is a monthly index measuring the relative economic confidence of U.S. small business owners who have less than five employees, a segment that consists of 22 million businesses producing more than a trillion dollars in annual receipts. The Watch is based on a national random survey of 750 small business owners. It is commissioned by Discover Business card, which strives to offer the best business credit card for American small businesses, and is conducted by Rasmussen Reports, LLC (www.rasmussenreports.com), an independent survey research firm. The numeric index is calculated by assigning values to responses to a set of six consistent questions. The base value of the Watch was established at 100.0 based on surveys conducted in August 2006. In addition to generating the index, the Small Business Watch surveys small business owners every month on key issues, and polls 3,000 consumers four times per year to gauge purchasing behavior and attitudes towards small businesses. For past results and survey data, visit www.discovercard.com/business/watch. For information on Discover Business card, visit www.discovercard.com/business.

About Discover

Discover Financial Services (NYSE: DFS) is a leading credit card issuer and electronic payment services company with one of the most recognized brands in U.S. financial services. Since its inception in 1986, the company has become one of the largest card issuers in the United States. The company operates the Discover card, America's cash rewards pioneer, and offers student and personal loans, as well as savings products such as certificates of deposit and money market accounts. Its payments businesses consist of Discover Network, with millions of merchant and cash access locations; PULSE, one of the nation's leading ATM/debit networks; and Diners Club International, a global payments network with acceptance in 185 countries and territories. For more information, visit www.discoverfinancial.com.