Fed Credit Survey Finds Small Businesses Experiencing Uneven Economic Recovery; 85% Have Faced Financial Challenges in 2021

Two-thirds of firms received pandemic-related financial assistance in 2021.

The Small Business Credit Survey 2022 Report on Employer Firms, issued today by the 12 Federal Reserve Banks, found many small businesses have not recovered to prepandemic levels, with the effects of the pandemic hitting disproportionately hard among firms in the leisure and hospitality sector, smaller firms, and firms owned by people of color. Pandemic-related financial assistance programs were widely used in 2020 and 2021, although use declined in the 12 months prior to the survey. Notably, the firms most susceptible to the negative effects of the pandemic were less likely to receive the financing they need.

Among the key findings:

• The pandemic continues to have a significant impact, with 77% of surveyed firms reporting negative effects.
• Sixty-six percent of employer firms received pandemic-related financial assistance, down from 87% in 2020.
• A majority of firms, 59%, reported being in fair or poor financial condition, a figure little-changed since the 2020 survey. Firms of color, smaller firms, and leisure and hospitality firms were most likely to be in fair or poor financial condition.
• Hiring or retaining qualified staff and navigating supply-chain issues are the top operational challenges that firms faced.
• The share of applicants receiving all of the traditional funding they sought fell from 51% in 2019 to 36% in 2020 to 30% in 2021.

Performance and Expectations:

Revenue and employment improved since 2020, but performance largely lags prepandemic levels.

• Eighty-five percent of employer firms experienced financial challenges, up four percentage points since 2020 and up nearly 20 percentage points since 2019.
• Forty-eight percent of firms saw a decrease in revenue, while 38% saw an increase.
• Half of firms in the leisure and hospitality industry reported a large negative effect from the pandemic, while only 26% of manufacturing firms reported the same.
• Expectations for future revenue and employment growth improved since 2020 but remain below prepandemic levels; 59% of firms expect revenues to rise and 41% anticipate employment growth in the next 12 months.

Pandemic-Related Financial Assistance:

Pandemic-related financial assistance programs were widely used in 2021, although their use declined since early in the pandemic.

• The financial assistance programs firms most often turned to were the Economic Injury Disaster Loan program and the Paycheck Protection Program (PPP), with 48% and 47% of firms applying.
• The share of firms receiving the full amount of PPP funding sought fell year over year, from 76% in 2020 to 67% in 2021.

Access to Credit:

Application rates for traditional financing were lower in 2021 than in recent years, and those that did apply were less likely to receive the financing they sought.

• The share of firms seeking traditional financing fell from 43% in 2019 to 37% in 2020 to 36% in 2021.
• The decline in approval rates was particularly pronounced for firms with good credit scores, as the share of low-credit-risk firms that received all the financing sought fell from 45% in 2020 to 38% in 2021.
• Firms more often sought financing to meet operating expenses rather than to expand their businesses.

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 collaboration of all 12 Federal Reserve Banks. In addition to the 10,914 firms with between 1 and 499 employees included in the report, the 2021 survey yielded 6,834 responses from nonemployer 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