In the wake of Congress approving another round of loans and loan guarantees for small businesses, I took a look at several recent surveys to see what they tell us about the impact of COVID-19. There are plenty of stories flying around that document the human face of small business struggles. Surveys allow us to see how thousands of businesses across the country are dealing with the crisis.
- Small businesses are getting hit hard, which we all knew;
- They’re doing everything they can to muddle through, which includes responding rationally to the economic and policy incentives they face;
- Usage of government support has been uneven;
- Small businesses expect pain at least through the end of 2020.
As was made clear during two Bipartisan Policy Center (BPC) events on “Saving Small Business” last week, there continues to be “huge fallout” across the landscape of American business. A recent paper from the National Bureau of Economic Research (NBER) likewise found “massive dislocation” among small businesses in a survey.
For many, cash on hand is running out or has run out already.
- In a recent survey on COVID-19 impact by the National Federation of Independent Business (NFIB), half of small businesses said they couldn’t survive longer than one or two more months. In other words, past Memorial Day.
- In a survey conducted by MetLife and the U.S. Chamber of Commerce, 43 percent of small businesses said they would likely have to close permanently at the six-month mark.
During an Axios event on small business, Sofia Dickens, founder of EQtainment, said she thinks we’ll see numerous small business failures within the next 30 days.
In a poll conducted by the BPC and Morning Consult (MC), 59 percent of small businesses said a decline in revenue was their top challenge. An even greater share, 80 percent, said they’ve experienced reductions in customer demand, according to a National Small Business Association (NSBA) survey. That was up from 49 percent in the middle of March.
The NFIB Small Business Optimism Index experienced its largest-every monthly decline in March, ending “a 39-month historic run of strong small business optimism.” And that was in March, before the full brunt of shutdowns were felt.
- The NFIB’s COVID-19 impact survey found that the share of small businesses saying they were negatively affected by the crisis had risen from 23 percent on March 10th, to 76 percent on March 20th, and to 92 percent on March 30th.
Some survey data indicate that there may have been some cracks in the small business economy prior to the crisis. In the Small Business Index produced by MetLife and the U.S. Chamber of Commerce, small business “confidence in local economies” had fallen in the first quarter of this year. Fewer small businesses were reporting good financial health.
How Small Businesses Are Responding
Unsurprisingly, hiring plans by small businesses have dropped steeply—the NFIB says this is “a signal of a strong downturn in future months.” Today, many are making difficult decisions about their workforce on a daily basis.
The BPC-MC poll found that most small businesses were striving to avoid outright dismissal of employees. Thirty percent said they had furloughed employees and 28 percent said they had laid people off, while 65 percent had decreased hours for employees. These actions overlap: nearly 9 out of 10 small businesses that said they decreased hours have also furloughed or laid off employees.
How small business owners are responding, from BPC-MC poll.
Bipartisan Policy Center and Morning Consult
The poll results don’t tell us this, but it’s possible that these actions happened in stages. In the early phases of the crisis, business owners may have reduced hours as consumer demand slipped. As things worsened—and before any public or private support had kicked in—they may have dismissed employees. Things could have also happened in reverse order, of course: layoffs and furloughs first, then reduced hours if businesses were able to access Paycheck Protection Program (PPP) loans or Economic Injury Disaster Loans (EIDLs).
Nevertheless, in the NFIB report, one quarter of businesses still said finding qualified workers was their top challenge—close to the record high of last summer. This indicates that returning to a “normal” labor market will still be a challenge after the immediate crisis. In the BPC-MC poll, 29 percent of small businesses who had employees working remotely said “lack of regular personal interaction among staff” was their biggest challenge. That ranked ahead of family, child care, and schooling needs as well as technology barriers. In a previous column, I cited Tyler Cowen’s concern that the small businesses were about to lose a significant chunk of “organizational capital” that would be hard to replenish.
Once things return to something closer to normal, this mix of breakdowns in employer-employees ties and difficulty finding qualified workers will complicate labor force dynamics.
Strikingly, among those small businesses who report having laid off employees due to COVID-19 in the BPC-MC poll, 23 percent of them have let go of 91 to 100 percent of their workforce. And that tends to be concentrated among the smallest employers: small businesses with two to 49 employees are three times more likely than those with 50-500 employees to have laid off nearly their entire staff.
Differences in size of layoffs according to business size.
Bipartisan Policy Center and Morning Consult
It’s these smallest businesses, with two to 49 employees, that are struggling the most with how to get through the crisis. Among those who furloughed employees, small businesses in this size category were nearly four times more likely to have furloughed 91 to 100 percent of their workforce. And, businesses with 50-500 employees are far more likely to continue providing health, dental, and vision benefits.
Encouragingly, the BPC-MC poll finds that two-thirds of small businesses that laid off employees say they plan to rehire them.
Are Small Businesses Tapping Government Support?
Congress just yesterday authorized another $310 billion for PPP and $60 billion for EIDLs, with $60 billion of the PPP funds earmarked for smaller lenders, including community development financial institutions. What do the recent small business surveys tell us about utilization of the first round of support?
- In the BPC-MC poll, 29 percent of respondents said they were using PPP, with another 18 percent using EIDLs.
- Non-usage of these programs was skewed toward companies with fewer than 20 employees.
- Similar numbers were reported in the NSBA survey, with 32 percent saying they had applied for PPP and 13 percent for EIDL.
- Among those who applied and received loans through these channels, the shares were 25 percent for PPP and five percent for EIDL.
Slightly higher utilization raters were reported in data collected by Alignable, the same platform used by researchers for the NBER paper. In the week ending April 17th—the same week PPP funds ran out—51 percent of small businesses said they had applied for PPP or EIDL funding, with 63 percent still awaiting approval.
There are to be some small differences according to race and ethnicity, although more data will be needed to draw conclusions.
- According to the BPC-MC poll, one quarter of minority-owned small businesses were using PPP, compared to 30 percent of white, non-Hispanic small business owners.
- A slightly higher percentage of minority-owned small businesses were using EIDLs (22 percent) compared to white non-Hispanic small businesses (17 percent).
- In the same survey, for the 28 percent of small businesses that had laid off workers, nearly half (48 percent) said a major factor in their decision was that PPP loans and the retention tax credit “are not large enough to keep us in business without laying off workers.”
Interpretation of this last result is not very straightforward, as we don’t know how many of the small businesses in this survey may have tried to apply for PPP-backed loans. It’s possible, too, that this finding reflects some of the constraints around PPP, namely, how payroll costs are calculated and the calendar expiration of fund use.
One quarter of small businesses in the NFIB survey were delaying payments to creditors in response to the crisis. The limitations on use of PPP funds will likely make this worse.
Looking Toward the Future
The balance of small business opinion is that the tough times won’t end anytime soon.
- According to the NFIB results, just 13 percent say the next three months is a “good time to expand,” the lowest in over three years. That’s not particularly surprising.
- Two-thirds of small business owners in the NSBA survey anticipate a recession—and 53% are concerned about the impact on their business of a second wave of the virus.
- According to the MetLife-U.S. Chamber survey, 46 percent of small businesses think it will take the economy six to 12 months to return to normal—whatever normal ends up being, of course.
- In the NBER-Alignable survey, half of small businesses “believe that the crisis will last at last until the middle of June.” In their survey, three-quarters of small businesses only had enough cash on hand to cover, at most, two months of expenses.
These findings are, to say the least, alarming.