The vast majority of small firms—95%—said that the coronavirus pandemic affected their business, with 26% reporting temporary closures, 56% reporting reductions in operations and another 48% reporting modifications to their operations, according to the latest Small Business Credit Survey released today by the Federal Reserve Banks. The survey was based on responses collected between September and October 2020, just after the closing the of the first round of Paycheck Protection Program funding.
For the first time in the survey’s five-year history, more businesses reported decreases in revenues and employment than increases; 78% of firms reported a decrease in revenue, while 46% reported declines in employment. More than half of all firms surveyed reported their financial condition as “fair” or “poor.” Sixty-five percent said that they were facing challenges meeting operating expenses, while 44% struggled to make payments on debt and 43% struggled to pay rent.
Nine in 10 firms sought some type of emergency funding to help meet these financing challenges, including 82% who sought a PPP loan, 47% who sought an Economic Injury Disaster Loan and 35% who sought an EIDL grant. Among PPP applicants, 96% who applied said they received at least some funding, and 80% said they expect their PPP loan to be forgiven in full.
Nearly half—48%—of PPP borrowers applied for funds through a small bank, while 43% applied to a large bank, 9% used an online lender, 5% used a credit union, 3% used a finance company and 2% used a community development financial institution. Borrowers also had the most success with receiving a fully funded PPP loan from a small bank (78%), compared to large banks (70%), online lenders (47%), credit unions (63%), finance companies (41%), and CDFIs (44%).
The Fed also asked firms if they would apply for additional government aid if offered. Sixty-four percent said they would apply, and of that, 39% believe it is unlikely their business would survive without further assistance until sales return to normal.
The Fed survey also found that applications for non-emergency funding decreased among small businesses in 2020, with just 37% applying for financing, compared to 43% in 2019. Forty-seven percent of firms surveyed that did not apply for funding said they needed it, but chose not to apply. Of those, 25% cited being debt-averse as their reason for not applying, while 12% said they felt discouraged from applying due to factors like weak sales, insufficient collateral or too much outstanding debt.
Approval rates on loans, lines of credit and cash advances also fell from an 83% peak in 2019 to 76%—the lowest percentage in the survey’s five-year history. Prior to the pandemic, about 61% of applications for loans, credit lines and merchant cash advances were approved in full, though that figure fell to just 44% after March 1, 2020, the Fed found.
Applicants were most likely to have success at receiving at least some funding from small banks during the pandemic, with 67% receiving at least some financing after March 1, compared to 64% from finance companies, 58% from large banks and 55% from online lenders. In terms of lender satisfaction, applicants said that they were most satisfied with credit unions (87%) and small banks (81%), followed by large banks (68%), finance companies (60%) and online lenders (43%).
When looking ahead to the next 12 months, small businesses varied in their outlook for revenue and employment. Forty percent said they expect a revenue increase, while 41% said they expect revenue to fall. Just over half expect employment to hold steady, while just under a third said they expect it to increase in the coming year.
Almost all firms said they expect pandemic-related challenges to persist over the next 12 months. Most saw weak demand for products or services as the biggest challenge (59%), followed by government-mandated restrictions or closures (53%), supply chain disruptions (37%), credit availability (32%), labor shortages (26%) and personal or family obligations on the part of the business owner or employees (22%).