Business Survey Identifies Pandemic-Hit Firms

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Many small businesses have not returned to pre-pandemic levels, with the pandemic affecting smaller enterprises, especially persons of color.

Many small businesses have not returned to pre-pandemic levels, with the pandemic affecting smaller enterprises, especially persons of color.

The 12 Federal Reserve Banks’ Small Business Credit Survey 2022 Report on Employer Firms show what economists suspect. Many small businesses have not returned to pre-pandemic levels, with the pandemic affecting smaller enterprises, notably those run by persons of color.

The Small Business Credit Survey (SBCS) gathers data on small business performance, financing requirements and options, and borrowing experiences.

Responses illuminate the dynamics of aggregate loan trends and special small business categories. Therefore, the study contains data from over 11,000 businesses in all 50 states and the District of Columbia using the latest technology.

The Fed Small Business Credit Survey

Emergency financial assistance programs were commonly utilized in 2020 and 2021, although use fell in the year before the study.

Notably, the pandemic-prone companies were less likely to get the required funding.

During COVID, the U.S. government offered small business pandemic aid, mostly through the Fed SBCS.

The SBCS uncovered…quite a lot.

The pandemic still has an impact, with 77% of enterprises reporting negative technology consequences.

In 2020, 87 percent of employer enterprises got pandemic-related financial support. 59 percent of enterprises reported being in good or bad financial positions.

A percentage was unchanged from 2020. The most financially distressed enterprises were those of color, smaller firms, and leisure and hospitality.

The biggest operational concerns for small businesses are finding competent employees and managing supplier technology chains. The proportion of applicants that received all of the typical financings requested declined from 51% in 2019 to 36% in 2020 and 30% in 2021. However, Hispanics got 19% of what was requested, while non-Hispanic Whites received 34%.

In 2019, non-Hispanic Blacks (26%) earned the least desired, followed by Hispanics (32%), non-Hispanic Asians (34%), and non-Hispanic whites (34%).

Revenue and employment have recovered since 2020, but performance remains below pre-pandemic levels.

Eighty-five percent of employers faced financial issues, up to four points from 2020 and roughly 20 points from 2019. Therefore, revenue fell for 48% of businesses, while it rose 38%. 63 percent of enterprises have fewer revenues than pre-pandemic, and 43 percent have decreased employment.

The pandemic significantly impacted half of leisure and hospitality companies, but just 26% of industrial enterprises.

Revenue and employment growth expectations have increased since 2020 but remain below pre-pandemic levels. Recruiting and keeping talented employees were cited as top operational concerns by 60% of organizations.

However, 78% of businesses reported too few candidates made hiring difficult. Employer revenue and employment patterns show some businesses recovered from the pandemic’s early impacts. Still more firms report sustained revenue and employment decreases.

Businesses extensively utilized assistance in 2021, but they also did earlier in the epidemic.

Approximately 48% of enterprises applied for the Economic Injury Disaster Loan Program and 47% for the Paycheck Protection Program (PPP).

Firms applied for PPP in 2020 and 2021, with 36% using the PPP in 2020 and 6% in 2021. In 2021, 90% of employer businesses that sought PPP financing obtained funding.

Approval rates for PPP applications fell in 2021. Small firms obtaining the total amount requested in PPP financing declined from 76% in 2020 to 67% in 2021.

Access to credit proved problematic.

Traditional finance applications were down in 2021. Those who did apply were less likely to get the money they wanted.

Firms seeking conventional finance declined from 43% in 2019 to 37% in 2020 and 36% in 2021. As a result, the reports show the percentage of low-credit-risk enterprises a decline in funding all requests. Moreover, from 45 percent in 2020 to 38 percent in 2021.

Firms sought funding to cover operational costs rather than grow. Small-bank applicants were the most satisfied. Minority-owned businesses, small businesses, and leisure and hospitality businesses were the least likely to get complete funding requests.

Small banks were preferred by 76% of enterprises, while big banks are now the bank of choice by 62%. Online-lender applicants cited exorbitant interest rates and unfavorable repayment conditions.

The January 2022 Biz2Credit Small Business Lending Index found similar results. Therefore, in January, central banks ($10+ assets) granted 14.5 percent of small company loan requests, while small banks report authorization of 20.3 percent. In January, non-bank lenders granted around 25.1 percent of financing requests, while credit unions authorized 20.7 percent.

Before the pandemic, central banks accepted 28.3% of loan applications. Whereas small banks authorized more than half (50.4%) of small company financing requests. According to the Biz2Credit Index, institutional lenders accepted almost two-thirds of requests (66.4%). Alternative lenders authorized 56.1%, and credit unions approved 39.6%.

Supply chain challenges multiplied.

Every small business needs to be aware of supply chain gaps today. These often start with big companies.

The upshot is those small companies have difficulty getting funding. For example, those in hard-hit sectors like restaurants, and those owned by people of color.

Forgiving loans is a thing of the past. Yet, the private sector and government agencies must be more eager to lend to small company owners. This includes agencies like the SBA which produce the majority of employment in the U.S.

Meanwhile, at the Minority Business Development Agency…

The Brookings Institute recommends expanding the Commerce Department’s Minority Business Development Agency (MBDA), consequently linking minority-owned firms with finance, contracts, and markets.

However, the new Infrastructure Investment and Jobs Act gives the MBDA tools to assist minority firms and entrepreneurs.

Allowing minority-owned companies to get finance will help them survive. Likewise, initiatives like the Restaurant Revitalization Fund helped eateries survive during the epidemic.

While the government can only do so much, fostering an environment that encourages small company survival is critical. Small business agencies like the SBA help smaller businesses grow.

Therefore, small companies generate employment and a feeling of community. Helping new and expanding companies strengthens America.

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