It’s no secret that the pandemic has had a deep and lingering effect on small businesses. Unfortunately, it may be worse than patrons imagined. More than half of small business owners said their firms are in fair or poor financial condition, results from a recent government survey showed, and it gets worse from there.
By the early fall, sales were still below their pre-pandemic “normal” levels for 88% of the firms surveyed by the Federal Reserve in September and October, and 70% of small business owners didn’t believe they would recover until at least the second half of 2021, if not 2022.
The results paint an even bleaker picture than the recent U.S. Census survey of small business owners conducted last month. There, 46.4% of small business owners estimated their business would not return to the same level it was before the pandemic until the second half of 2021, with another 7.1% saying they don’t expect their businesses to ever recover.
Either way, the pandemic has posed obstacles for most small businesses. For the first time since the Fed’s Small Business Credit Survey began five years ago, more firms experienced decreases in revenues and employment than increases. Seventy-eight percent of firms reported decreases in revenues, and 55% had to cut staff hours or downsize operations.
To fill the gaps, a majority of firms sought funding from a variety of sources outside of their business during the pandemic:
- 62% of firms used personal funds to address their financial challenges
- 38% made a late payment or skipped a payment altogether
- 52% obtained funds from crowdfunding and donations
- 91% sought emergency assistance funding from the government, such as Paycheck Protection Program (PPP) loans
When the survey was conducted, 64% said they would apply for another round of government aid if it were offered, well before they knew whether Congress would approve a new fiscal stimulus package or offer an additional round of PPP loans. Of those firms, 39% expected they would be unlikely to survive without further government assistance.
Luckily, more help might be on the way for small businesses. As part of his “American Rescue Plan,” President Joe Biden included requests to Congress to provide $15 billion in grants to 1 million small businesses and an additional $175 billion in small business lending and investment. Congress began discussing Biden’s rescue plan this week.
Small businesses are an important engine for employment in the U.S. Between 2005 and 2019, 64% of net new private-sector jobs were generated by small businesses.