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Notes from the Field

Small Businesses in Our Region Appear to Have Had Greater Access to Traditional Credit Compared to the Nation...but Inequalities among Firms Persist

Nearly 18 months from the outbreak of COVID-19, small employer firms—businesses with fewer than 500 employees—continue to cope with the extra challenges the pandemic brought. How are they weathering the pandemic?

The views expressed in this report are those of the author(s) and are not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System.

Nearly a year and a half since the outbreak of COVID-19 in the United States, small employer firms—those businesses with fewer than 500 employees—continue to cope with the extra challenges the pandemic brought. Data captured in the Federal Reserve’s Small Business Credit Survey (SBCS) last fall uncover the experiences of small businesses both nationwide and within the Cleveland Fed’s Fourth District (Ohio, eastern Kentucky, western Pennsylvania, and the West Virginia panhandle), particularly in terms of their experiences accessing capital and credit. How have Fourth District firms weathered the pandemic? How have their experiences with credit access compare to firms across the United States?

  • Fourth District and US firms had similarly turbulent experiences early in the pandemic. At the time of the 2020 SBCS survey in September and October 2020, businesses had been coping with mandatory closures, different operating procedures, and capacity restrictions for about six months. Seventy-nine percent of Fourth District businesses and 78 percent of US businesses reported experiencing a decrease in their annual revenue. These decreases can largely be attributed to weakened demand—levels of demand inevitably shifted as consumers established new behaviors in response to the public health crisis. Small-business owners viewed weakened demand as a persistent pandemic-related challenge: SBCS data revealed that 60 percent of Fourth District businesses and 59 percent of US small businesses expected to face weak demand in the 12 months following the survey.
  • Fourth District firms turned to pandemic-related funding and traditional credit at similar or greater rates than the nation—and (most) got it. Eighty-one percent of Fourth District small businesses applied for a Paycheck Protection Program (PPP) loan, on pace with US firms. But the more striking story for Fourth District firms is around traditional credit products. Fourth District firms had greater success than US firms in accessing traditional financing. While they were as likely as US firms to apply for financing in the 12 months prior to the survey, Fourth District firms more often received the financing they sought. Eighty-two percent of Fourth District firms received at least some of the financing they applied for, compared to 75 percent of firms nationally. Furthermore, 43 percent of Fourth District small businesses received all the financing they needed, compared to 37 percent of firms nationwide.
  • Firm characteristics may have tipped the scales favorably for some but not all. The SBCS provides rich demographic data on firms, and, in part, because of it, we know that demographic characteristics of firms often mean differences in credit access outcomes. Firms in the Fourth District are typically larger and more established than firms across the US—enabling more immediate access to traditional lending and lender relationships, which was generally advantageous during the initial PPP rollout. They are also more likely to be white-owned, a characteristic that makes them less likely to report suffering significant negative effects of the pandemic than firms owned by people of color. This last point is perhaps the most sobering and reinforces the importance of understanding firms’ experiences in real time. Sure enough, early conversations and outreach in fall of 2020 and into the winter foreshadowed what we later learned from the national SBCS data—for example, that firms owned by people of color not only applied for loans at lower rates but received a smaller portion of requested funding than white-owned firms even when adjusted for credit risk. That is to say, even among all firms with low credit risk (white-, Black-, Asian- and Hispanic-owned), firms owned by people of color were less likely than their white counterparts to receive all the financing they sought. And, in general, PPP funds did not reach lower-income communities at the same rates as higher-income communities.

The Road Ahead for Small Businesses

Much has changed for small businesses since data were collected during the 2020 SBCS. The 2021 SBCS—currently open through November 19—will provide fresh data on small business conditions and credit access, including credit experiences after programmatic changes to PPP and other pandemic-related emergency funding programs. Such data can help inform future policymaking and small business decisionmaking as new variants of the virus arise and firms react to continued uncertainties. Community development leaders and policymakers can be on the lookout for key findings from the 2021 SBCS in early 2022. In the meantime, please encourage small-business owners to take the survey and small business intermediary organizations to partner with us to help distribute.

For more information about the Small Business Credit Survey, please visit