Small Business Credit Survey 2021 Report on Nonemployer Firms

The COVID-19 pandemic affected small businesses across the United States, with few escaping financial and operational challenges as a result of declines in economic activity and actions taken to reduce the spread of the virus. Among the most impacted firms were the smallest businesses—nonemployer firms—which are businesses with no employees other than the owner(s). Given nonemployers make up 81% of all small businesses in the United States, understanding the impact of the pandemic on those businesses and their ability to access emergency funding is important in assessing the overall well-being of the small business sector.

This publication focuses on the experiences of nonemployer firms in the months leading up to the pandemic and the first six months of the crisis. The report supplements the findings from the 2020 Small Business Credit Survey (SBCS) described in the Small Business Credit Survey 2021 Report on Employer Firms, which explored outcomes for businesses with 1–499 paid employees other than the owner(s). Nonemployer firms are distinct from employer firms in more than just the employment size of the business. Nonemployers are concentrated in different industries and are more likely to be owned by women and people of color. While some nonemployers are gig workers supplementing their income, a majority of the respondents in the SBCS sample reported that their firm was the primary source of income for their household, and a quarter of them planned to become employer firms within the next year.

This publication examines findings for nonemployer firms and highlights the differences in experiences between nonemployer and employer businesses. On average, nonemployer firms reported larger declines in performance in the 12 months preceding the survey than employer firms, and nonemployers also more often struggled to access the funding necessary to keep their businesses afloat. This report also underscores the importance of revenue size: Nonemployer firms with $100,000 or less in annual revenues faced more challenges and worse outcomes than larger-revenue nonemployers, which often reported conditions similar to those of smaller-revenue employer businesses.

Survey Findings

The SBCS provides data on small business performance, financing needs and decisions, and borrowing outcomes. The 2020 SBCS, which was fielded in September and October 2020, yielded 4,531 responses from nonemployer firms (hereafter “nonemployers,” or “nonemployer firms”) in all 50 states and the District of Columbia. This report also includes findings from a sample of 9,693 small employer firms—that is, firms with 1-499 full- or part-time employees (hereafter “employers,” or “employer firms”).

In some instances, this report references “larger” and “smaller” nonemployer firms and employer firms. Smaller nonemployer firms are those with $100,000 or less in annual revenues; larger nonemployers are those with more than $100,000 in annual revenues. Smaller employer firms are those with $1 million or less in annual revenues; larger employers are those with more than $1 million in annual revenues.

Nonemployer firms widely reported declining revenues between 2019 and 2020 and often turned to personal funds in response to financial challenges.

  • Seventy-six percent of nonemployers reported a decline in revenues in the 12 months prior to the survey. Just 13% reported revenue growth.
  • Among all nonemployers, 32% characterized their financial condition as “poor” at the time of the survey. Thirty-six percent of smaller nonemployer firms were in poor financial condition; this figure falls to 23% for larger nonemployer firms.
  • Eighty-one percent of nonemployer firms experienced some type of financial challenge in the 12 months prior to the survey. Compared to employer firms, nonemployers more often turned to personal funds and reported some impact to household finances as a result of those challenges.

Nonemployer firms accessed COVID-19-related small business assistance at lower rates than employer firms, though many nonemployer firm owners received enhanced unemployment benefits.

  • While 91% of employer firms completed an application for emergency assistance funding, just 66% of nonemployers completed an application. However, 30% of nonemployer firm owners reported collecting unemployment insurance benefits.
  • Smaller nonemployer firms were less likely than larger nonemployer firms to apply for and receive emergency assistance funding. While 62% of smaller nonemployers sought and received assistance, 78% of larger nonemployers did so.
  • The Paycheck Protection Program (PPP), which was the most popular emergency funding program for employer firms, was far less commonly used by nonemployers. Thirty-five percent of nonemployers applied for a PPP loan, as compared to 82% of employers. Nonemployers that did apply for a PPP loan were less successful than employers at obtaining the funding they sought.

As the availability of emergency funding increased, demand for traditional financing fell among nonemployers between 2019 and 2020. Nonemployer firms that did apply for financing were less likely than employer firms to receive the full amount they sought.

  • Twenty-four percent of nonemployers applied for financing in the 12 months prior to the survey, a decline from 29% in the 2019 survey period.
  • More than one in three nonemployer firms received none of the financing for which they applied. Among smaller nonemployer firms, 42% received none of the financing they sought. The same was true for 35% of larger nonemployer applicant firms.
  • Compared to employer firms that applied for financing, nonemployers firms that applied were less likely to seek financing at small banks (30% vs. 43% of employers) and more likely to turn to online lenders (25% vs. 20% of employers).
  • Across the most common sources of loans, lines of credit, and cash advances, nonemployer applicant firms were more likely to be at least partially approved at small banks (56%) than at online lenders (50%) or large banks (41%).

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