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Press Release

2019 Saw Continued Revenue Growth Among Small Employer Firms, but Funding Shortfalls and Financial Challenges Threaten Ability to Weather COVID-19 Crisis

Federal Reserve Banks’ Small Business Report Finds Firm Performance Held Steady from Previous Year; New Supplemental Brief Explores Financial Resiliency of Small Firms Facing Sustained Revenue Shock

The 12 Federal Reserve Banks today issued the Small Business Credit Survey: 2020 Report on Employer Firms, which examines the findings of an annual survey of small business owners nationwide. The Report focuses on small employer firms – businesses that have between 1 and 499 full- or part-time payroll employees (hereafter “firms”). The 2019 survey yielded more than 5,500 responses from firms in the 50 states and the District of Columbia.

As policymakers and service providers enact programs to help small businesses weather the COVID-19 outbreak, the Report provides baseline estimates about small firms’ performance, financing and credit positions, and relationships with lending institutions prior to the onset of the crisis. To provide deeper insights into the financial health of small firms facing an economic shock, the Federal Reserve Bank of New York also released a supplemental brief that leverages data from the survey to gauge the financial resiliency of small firms.

“Small businesses nationwide now face unprecedented challenges as the country grapples with the significant economic and social effects of the COVID-19 pandemic,” said Claire Kramer Mills, assistant vice president at the New York Fed. “Utilizing pre-outbreak data on firms’ financial cushions and funding networks, the report and brief released today offer critical, baseline information to policymakers and stakeholders on the financial and operational challenges shared by small businesses. The data underscore that while small firms reported a strong end to 2019, many continued to deal with financial challenges, and even the healthiest of firms could face tough decisions amid a sustained loss in revenue. Furthermore, by shedding light on the channels through which firms may seek financial recourse, the data can inform the design of new loan and grant programs and offer insights on how to reach businesses in need.”

Fielded in the third and fourth quarters of 2019, the Report finds that a majority of small employer firms experienced revenue growth in the previous year, while more than one-third also added employees to their payroll. However, nearly two-thirds of firms reported facing financial challenges in 2019, with more than a fifth of firms experiencing a financing shortfall despite applying for funding. A majority of firms also reported having to use an owner’s personal savings or tapping their personal networks to support their business, while less than half had obtained funds from a bank in the last five years. Additionally, the supplemental brief released today suggests that even profitable firms with low credit risk may find it difficult to weather a sustained revenue shock using cash reserves alone.

Key findings can be found in the 2020 Report on Employer Firms’ executive summary. These findings include:


  • The shares of firms reporting revenue and employment growth in 2019 were nearly unchanged from 2018. The net share of firms operating at a profit also remained flat compared to the previous year.
  • More than three quarters of employer firms (76%) saw input costs increase in the previous 12 months. Among those who experienced higher costs, 61% of firms raised the prices they charged.
  • A majority of firms (77%) reported that they prefer their business to be larger than its current size, with more than a quarter (26%) saying they would like their firm to be “much larger.”


  • Nearly two-thirds (64%) of firms reported facing financial challenges in the prior 12 months. Among the most common were challenges paying operating expenses (43%), difficulties with credit availability (33%) and issues with making payments on debt (30%).
  • 86% of firms would need to take some action in order to mitigate losses if they missed two months of revenue, such as using an owner’s personal funds, taking out debt, or reducing salaries of the owner or employees.


  • The share of employer firms that applied for financing remained flat compared to 2018 at 43%. More than half (58%) of firms reported seeking $100,000 or less in financing, similar to the previous year.
  • More than a fifth of firms experienced a financing shortfall in 2019 despite applying for financing. Furthermore, an additional 29% of firms may have unmet financing needs but did not seek financing for reasons such as being debt averse or having been discouraged from applying for funds.
  • “Low credit risk” firms – defined as those with a 80-100 business credit score or those with owner(s) that maintain a 720+ personal credit score – were more likely to obtain all the financing they sought (62%). Conversely, only 23% of “high credit risk” firms – those with a 1-49 business credit score or an owner(s) with a <620 credit score – reported receiving all of the financing they sought.
  • 88% of employer firms said they rely on an owner’s personal credit score to obtain financing, similar to levels seen in 2018. Additionally, 56% have used funds from their personal savings, friends, or family within the last five years to support their business.


  • Among firms that obtained financing from outside of their personal networks, banks were the most common source (44%), followed by online lenders (22%) and credit unions (6%). Overall, however, fewer than half of all small firms that participated in the survey obtained funds from a bank in the last five years.
  • The use of bank financing varied significantly by ownership demographics, firm revenue size, and credit risk. The highest reported bank funding was found among firms with >$1M in annual revenues (57%), firms with low credit risk (55%), and firms with non-Hispanic white ownership (46%). By contrast, firms with non-Hispanic Black ownership were half as likely to have obtained bank funds (23%), and rates were similarly low among firms with $100K or less in annual revenues (24%) and those with Hispanic ownership (34%).

The supplemental brief published today – titled, “Can Small Firms Weather the Economic Effects of COVID-19” – draws on data from the Small Business Credit Survey to examine the financial resiliency of employer firms and their ability to weather the potential economic effects of the COVID-19 outbreak. The brief classifies firms into three categories based on profitability, credit risk, and business funding. “Healthy” firms are those that are profitable, have a high credit score (low credit risk), and primarily use retained earnings to fund the business. Firms that meet only two of these criteria are classified as “stable,” while those that meet only one are categorized as “at risk.” Firms that do not meet any of these criteria are classified as “distressed.”

Key findings from the brief include:


  • Even after an 11-year economic expansion, 30% of surveyed firms were classified as “at risk” or “distressed” overall.
  • However, the aggregate numbers mask the varying degree of financial health among small businesses, with key distinctions seen along the lines of ownership demographics, firm size and age of the business. Smaller firms, younger firms, and firms helmed by Black or Hispanic owners were more likely to be classified as “at risk” or “distressed.”


  • Among “healthy” companies, only one-in-five firms could continue business-as-usual with their cash reserves if confronted with a two-month loss in revenue. This figure falls to less than one-in-ten for every other category of firm.
  • “Healthy” and “stable” firms were the most likely to cut salaries or lay off workers if they were to face a two-month loss in revenue. Conversely, “at-risk” and “distressed” firms were more likely to take out debt to support their operations.
  • 58% of “at risk” firms and 62% of “distressed” firms reported they would use an owner’s personal funds to help sustain the business, compared to 42% of “healthy” firms and 50% of “stable” firms.

About the Small Business Credit Survey (SBCS)

The SBCS collects information about business performance, financing needs and choices and borrowing experiences of firms with fewer than 500 employees. Responses to the SBCS provide insight into the dynamics behind aggregate lending trends and about noteworthy segments of small businesses. The results are weighted to reflect the full population of small businesses in the United States. The SBCS is not a random sample; therefore, results should be analyzed with awareness of potential methodological biases.

The SBCS includes experiences from firms across all 50 states and the District of Columbia through the joint efforts of the Federal Reserve Banks of New York, Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, Philadelphia, Richmond, San Francisco and St. Louis. The 2019 SBCS collected 9,534 responses in total, 5,514 of which were from employer firms.

Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

Media contact

Doug Campbell,, 513.455.4479