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Yes, We’re Open: Eighth District Small Businesses Forge Ahead

By

Lisa J. Locke
Tuesday, June 1, 2021
Young man hanging business open sign on door

Historically, small businesses (defined by the U.S. Small Business Administration (SBA) as enterprises with 500 or fewer employees) have played a significant role in the American economy. According to the SBA, these companies represent 99.7% of all firms, employ about half of all private sector employees and generate 64% of net new jobs. While job markets grew at the end of 2019, the beginning of 2020 saw the market come to a sudden stop with the onset of COVID-19. As the pandemic made its way throughout the country in March 2020, it caused small businesses to face unprecedented disruptions. Over the course of the next year, many activities ceased or pivoted because of stay-at-home orders and calls to socially distance, resulting in tough decisions for small-business owners.

Small Business Credit Survey

Since 2016, the Federal Reserve System has administered the Small Business Credit Survey (SBCS) to better understand the credit landscape for small businesses. This national survey is conducted annually to assess the financial needs of small businesses. Due to the pandemic, the 2020 survey was conducted from Sept. 9 to Oct. 31, 2020, to gather information about the credit needs and challenges facing small-business owners. Responses were received from 9,693 employer firms and 4,531 non-employer firms. Nearly 1,000 responses were received from businesses that were either preparing to open or taking steps to close permanently.

Overall, national survey results showed the economic impact to microbusinesses (those with one to nine employees), Black-owned businesses and women-owned firms was dire. Surprisingly, 41% of Black-owned businesses permanently closed since April 2020. Black-owned firms noted that access to credit was a major concern over the next year. Microbusinesses also faced challenges accessing emergency assistance via the first round of the SBA’s Paycheck Protection Program (PPP) funding.

Nearly all firms' operations were affected by the pandemic

SOURCE: 2021 Small Business Credit Survey

NOTE: The image above outlines the effects the pandemic had on small-business operations, as well as root causes for operational changes.

Across the Eighth District, results from the 2020 SBCS aligned with national survey figures. Notable findings included:

  • The primary financial challenges facing small businesses included operating expenses (61%) and making payments on debt (39%). Many business owners used their personal funds to meet these financial challenges.
  • 50% of firms reported their financial conditions as poor or fair, while the remaining 50% reported conditions as good, very good or excellent.
  • COVID-19 caused a reduction in business operations for 50% of firms, while 39% of businesses were able to stay open with modifications.
  • Business owners expected COVID-19 to continue to impact sales with anticipated declines of 10% to 50%.

A Long but Hopeful Road Ahead for Small Businesses

The Arkansas Small Business and Technology Development Center (ASBTDC) has been a participating partner of the SBCS since 2016.

“Our organization appreciates the value of the survey. It allows us to take a pulse of our clients’ credit needs, obstacles, trends and challenges,” said Michael Singleton, state associate director of the ASBTDC.

During the pandemic, the ASBTDC spent numerous hours assisting clients applying for PPP funds and the Economic Injury Disaster Loan. Although COVID-19 placed a strain on many businesses, ASBTDC’s clients have continued to operate and are excited that business began picking back up during the first quarter of 2021. Singleton noted that although business operations are not at pre-pandemic levels, the current numbers are encouraging indicators that point to signs of recovery.

Deeper Dive

Findings from the 2021 SBCS report on firms owned by people of color are now available. Additional information on the Fed’s SBCS can be found at https://www.fedsmallbusiness.org/about.

ABOUT THE AUTHOR
Lisa J. Locke 

Lisa J. Locke is a community development advisor, specializing in small business and entrepreneurship, at the St. Louis Fed.