United States / Analyst Insights
8 Thriving Cottage Industries
by IBISWorld
Jan 19 2018

As seen in Credit Union Magazine

Cottage industries – businesses that can be started by individuals in their home – present major lending opportunities for credit unions. Many of these homepreneurs may already be credit union members, and may lack access to another lending institution for credit to expand their business. Other small business owners may seek out the low rates and personalized services that credit unions can offer. Consequently, credit unions harness a competitive advantage over other thrifts in this market.

Homepreneurs are likely to offer a service rather than manufacture a product. This is because lower wages and often lower input prices abroad enable foreign producers to offer lower prices for products. Meanwhile, homepreneurs can often provide services locally that are impossible to replicate by remote service providers. In particular, IBISWorld analysis has found that growing personal care, household and entertainment service providers may harbor the most alluring opportunities for credit unions during the next five years.

IBISWorld recently queried its database of more than 1,000 industries to isolate industries that average about one employee per enterprise. The following cottage industries’ revenue is forecast to grow most quickly during the 10 years to 2017, presenting unique lending opportunities for credit unions in the next five years. Growing businesses are likely to seek out loans to invest in their operations as a way to foster even faster growth or higher returns.

8 Thriving Cottage Industries

Industry

10-Year Annualized Revenue Growth (2007 to 2017)

Alternative Healthcare Providers

4.2%

Psychologists, Social Workers and Marriage Counselors

5.0%

Personal Waxing and Nail Salons

3.1%

Psychic Services

1.2%

Maids, Nannies and Gardeners

0.8%

Online Pet Food and Pet Supply Sales

3.5%

Party and Event Planners

1.0%

Performers and Creative Artists

0.6%

Alternative Healthcare Providers

Healthcare reform prohibits health insurance companies from discriminating against licensed alternative healthcare providers, so providers are anticipated to benefit as more people enjoy coverage for industry services. Alternative health care providers include meditation, yoga or massage therapists. Consolidation is expected because billing and coding for insurance payments is time consuming and costly, so larger operations are better able to properly perform these functions. The number of industry operators is projected to decline 4.2% per year on average to 151,478 during the five years to 2017. While consolidating operators may seek out small business loans, these firms’ operating profit will likely benefit from post-merger synergies.

Psychologists, Social Workers and Marriage Counselors

According to the National Mental Health Association, two-thirds of American adults and one-third of children who need mental health treatment do not receive it. A reform-mandated increase in insurance coverage for services provided by psychologists is expected to help psychologists address this unmet need and open or expand such businesses. In particular, private practices can be more lucrative for individual operators, so healthcare changes will provide incentive for new businesses to enter. Smaller operators that do not have institutional financial backing will be most likely to seek out loans during the next five years.

Personal Waxing and Nail Salons

Declining unemployment and increased disposable income will enable a greater number of consumers to afford nail care and waxing services. Nails-only salons will likely diversify their offerings to include services such as massages, facials and tanning. Diversification will mitigate revenue volatility because it will expand the industry’s target market, and it increases the probability that operators will seek out loans for expansion.

Psychic Services

Increased citywide regulations will likely be introduced during the next five years, which will result in industry consolidation. This may boost operator interest in small business loans to finance mergers or acquisitions. With lessened price-based competition due to fewer operators, profit margins are expected to increase slightly from 7.0% of revenue in 2012 to 7.4% by 2017.

Maids, Nannies and Gardeners

As the population continues to age, demand for home-care aids will grow. Furthermore, the unemployment rate is expected to continue declining, yielding greater per capita income growth and spurring demand for household staff during the next five years. Consequently, industry employment is also expected to rise 3.7% per year on average from 2012 to 2017. As the small businesses in this industry expand, they may demand working capital loans to subsidize short-term costs like wages, or purchasing inventory like machinery.

Online Pet Food and Pet Supply Sales

The number of pets is forecast to grow 2.0% annually on average during the next five years, which will support revenue growth for homepreneurs offering pet-related services. Loans will be likely used for start-up or expansion costs. This industry’s low barriers to entry and employee skill requirements allow companies to enter the market without much difficulty.

Party and Event Planners

As unemployment falls and people are faced with waning free time, demand for professional event and party planning will grow. This will set the stage for more industry entrants; in the five years to 2017, the number of participants is forecast to grow at an average annual rate of 2.5% to 372,228. Business loans will enable party and event planners to hire more employees and purchase more supplies to cater to a higher volume of events.

Performers and Creative Artists

Improved economic conditions may spur performers to seek loans for self-promotion purposes like acting reels or headshots. Effective marketing tactics can help independent artists develop the necessary fan base they need to launch their career. Improved economic conditions are anticipated to provide more avenues for revenue growth during the next five years.

The bottom line

These industries are mainly composed of regional small businesses that fit into the “Main Street” lending activities of credit unions. Homepreneurs will be attracted to credit unions’ lower fees and transaction costs or specialty services, which commercial banks would not be able to offer. Additionally, as demand for such services escalates, operators in the aforementioned industries may seek out loans from credit unions to expedite their expansion. During the next five years, small business growth potential makes these industries prime lending candidates for credit unions.