Credit Survey Finds Small Businesses in Prolonged Crisis; Nearly One-Third of Surviving Firms Say They’re Unlikely to Continue Operating Without Additional Government Aid

Study Finds 64 Percent of Firms Say They Would Apply for Another Round of Government Assistance; Stark Differences by Race and Ethnicity of Business Owners

Firms in Ohio, Pennsylvania Have Been in Business Longer, Have More Employees, and More Likely to be White-Owned

The Small Business Credit Survey: 2021 Report on Employer Firms, issued today by the 12 Federal Reserve Banks, found that sales had not returned to pre-pandemic levels for almost 90 percent of small-business owners. Of those firms, nearly one-third said it would be very unlikely or somewhat unlikely their firms could survive until sales recovered without government assistance.

The annual survey of small business owners, fielded in September and October of 2020, yielded 9,693 responses from a nationwide sample of small employer firms with anywhere from one to 499 employees. The data is for firms that were currently operating at the time of the survey; it does not include permanently closed businesses.

Among the key findings:

• Sales for 88% of small businesses have not returned to pre-pandemic levels. Of those firms, 30% said it would be unlikely, without government help, that the firm could survive until sales recovered.
• The majority of firms, 64%, said they would apply for another round of government aid if it were offered. Of those firms, 39% expected they would be unlikely to survive until sales returned to normal without further government assistance.
• The report found stark differences by race and ethnicity. While 54% of firms overall characterized their financial condition as “fair” or “poor,” this figure jumped to 79% for Asian-owned firms, 77% for Black-owned firms, and 66% for Latinx-owned firms.
• Black-owned firms said credit availability was the top expected challenge in the next 12 months.
• Firms that applied for Payroll Protection Program (PPP) funds were more likely to receive all the funds they sought at lenders where existing relationships were more common — small banks, large banks, and credit unions.
• Among PPP applicants, firms that received funds were more likely than firms that did not receive funding to retain their workforce.

Performance and Expectations:
Almost every firm surveyed said the pandemic had impacted their business, with a majority expecting 2020 revenue to drop by more than one-quarter:

• The share of firms that experienced financial challenges in the prior 12 months rose from 66% to 80% between 2019 and 2020.
• Ninety-five percent of firms reported that the pandemic impacted their business; 78% reported a decline in revenue and 46% reduced their workforce.
• Fifty-three percent of firms expected total sales revenue for 2020 to decrease by more than 25%.
• The net share of firms expecting employment growth was 14% compared to 38% in 2019. Thirty-seven percent of firms expect that the most important challenge stemming from the pandemic in the next 12 months will be weak demand, followed by government-mandated restrictions or closures (53%) and supply chain disruptions (37%).
• Among the 80% of firms that experienced financial challenges in the prior 12 months, 62% used personal funds, while 55% cut staff hours/downsized operations.

Government Assistance:
Almost all the small employer firms surveyed applied for emergency funding. Those that received all they requested were less likely to reduce payroll and more likely to rehire laid-off employees than firms that did not receive all they requested.

• Ninety-one percent of firms applied for some type of emergency funding during the pandemic.
• Eighty-two percent of employer firms applied for Paycheck Protection Program (PPP) loans; 77% percent of PPP applicants received all the funding they sought.
• Firms that sought PPP funds most frequently submitted their applications through small (48%) and large (43%) banks. Of firms that applied through large banks, 95% had an existing relationship with their bank prior to applying for a PPP loan. Eighty-three percent of small bank applicants had an existing relationship.
• While 46% of firms that received all the PPP funding they sought reduced the number of employees on their payroll, that figure increased to 71% for firms that received none of the PPP funding for which they applied. PPP recipients were also more likely to rehire employees they laid off once they received the funds.

Debt and Access to Credit:
The number of firms carrying debt increased, as did those with a debt load of more than $100,000. Most owners whose firms experienced financial challenges in the prior 12 months used personal funds to help their businesses.

• Seventy-nine percent of firms had debt outstanding, an increase from 71% in 2019.
• The amount of debt firms held increased; the share of firms with more than $100,000 in debt rose from 31% in 2019 to 44% in 2020.
• The share of applicant firms that received all the financing (excluding PPP and other emergency financing) they sought declined from 51% in 2019 to 37% in 2020.
• Eighty percent of firms reported that pandemic-related business challenges impacted the owners’ personal finances, with 63% not drawing or reducing their salary and 51% paying business expenses with their personal funds.
• Forty-two percent of firms that applied for a loan, line of credit, or cash advance sought this funding from a large bank, a similar share as that in 2019 (40%). Forty-three percent turned to a small bank, up from 36% in 2019. In contrast, the share of firms that applied to an online lender fell from 33% in 2019 to 20% in 2020.
• Firms with lower credit scores turned to online lenders (35%) and nonbank finance companies (23%) much more often than did their counterparts with higher credit scores (11% and 11%, respectively).

Fourth District* key findings:
Relative to employer firms in the national sample, small businesses in the Fourth District:

• Were more likely to be rural, had been in business longer, had more employees, and were more likely to be White-owned.
• Were more likely to identify large banks as one of their business’s financial services providers and less likely to utilize credit unions.
• Were more likely to receive all of the financing they sought.
• Were more likely to expect to face labor shortages as a challenge stemming from the pandemic.

*The Fourth Federal Reserve District encompasses Ohio and parts of Pennsylvania, Kentucky, and West Virginia.

Ohio key findings:
Relative to employer firms in the national sample, small businesses in Ohio:

• Were more likely to be rural, had been in business longer, had more employees, and were more likely to be White-owned.
• Were less likely to identify government-mandated restrictions or closures as the most important pandemic-related challenge anticipated in the next 12 months.
• Were more likely to utilize large banks as financial services providers and less likely to utilize small banks.

Pennsylvania key findings:
Relative to employer firms in the national sample, small businesses in Pennsylvania:

• Were more likely to be urban, had been in business longer, had more employees, and were more likely to be White-owned.
• Were more likely to report a decrease in their number of employees in the prior 12 months.
• Were more likely to report that their financial condition was fair or poor as opposed to good, very good, or excellent.
• Were less likely to receive all of the PPP funding they sought.
• Were more likely to identify government-mandated restrictions or closures as the most important pandemic-related challenge anticipated in the next 12 months.
• Were more likely to utilize large banks as financial services providers and less likely to utilize credit unions.

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. These firms represent 99.7% of all employers.

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. In addition to the 9,693 firms with employees included in the report, the 2020 survey yielded 4,531 responses from non-employer firms. These findings will be explored in a separate forthcoming report.

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, doug.campbell@clev.frb.org, 513.455.4479