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One-Third of Small Businesses Don’t Expect to Survive

February 11, 2021

3 min Read

Written by Yaël Bizouati-Kennedy

Edited by Daria Uhlig

An Asian woman small business owner affected by the COVID-19 virus.

RichLegg / Getty Images

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Small businesses continue to face significant challenges amid the COVID-19 pandemic, including weak demand, heightened expenses and limited credit availability. Nearly one-third of firms say that without additional government aid, they’re unlikely to survive until sales recover to pre-pandemic levels, according to a recent Federal Reserve survey.

See: Americans’ Savings Drop to Lowest Point in YearsFind: 2020 in Review – The Year for Small Businesses Across the US

For many of the 9,693 nationwide small firms that responded to the survey, the outlook remains tenuous, as sales for 88% of them have not returned to pre-pandemic levels, according to the Federal Reserve’s Small Business Credit survey.

The majority of firms — 64% — said they would apply for another round of government aid if it were offered. Of those firms, 39% expected they would be unlikely to survive until sales return to normal without further government assistance. In terms of returning to “normal levels,” 14% expect it will happen in the first half of 2021; 41% in the second half of 2021; and 29% in 2022 or later.

See: American Productivity Drops in 4th Quarter of 2020Find: 25 Experts’ Predictions on When We Will Bounce Back From COVID-19

The COVID-19 pandemic has had wide-reaching effects on small business operations, with 95% of them reporting that the pandemic impacted their business.

“For example, 26% closed temporarily, 56% reduced their operations and 48% modified their operations. Of those that faced disruptions to operations, firms most commonly cited changes in demand (58%), government mandates (55%), or the need to adapt to health and safety guidelines (52%) as reasons their businesses were affected,” the survey reads.

See: What’s In Store for the Restaurant Industry in 2021?Find: 5 Companies That Pivoted Quickly to Meet Pandemic Demands

Another key finding of the survey is the stark disparity by the race of business owners: While 57% of firms overall characterized their financial condition as “fair” or “poor,” this figure jumped to 79% for Asian-owned firms, 77% for Black-owned firms and 66% for Latinx-owned firms.

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Thirty-seven percent of firms expect that the most important challenge stemming from the pandemic in the next 12 months will be weak demand, followed by government-mandated restrictions or closures (26%) and credit availability (13%).

See: Steps Small Businesses Can Take to Bounce Back in 2021Find: New PPP Program Aims to Be More Careful in Disbursing Funds

In terms of government aid, 91% of the small employer firms surveyed said they applied for emergency funding. A further breakdown of the data notes that 82% applied for Paycheck Protection Program loans and 77% percent of PPP applicants received all the funding they sought.

Finally, the survey notes that those that received all they requested were less likely to reduce payroll and more likely to rehire laid-off employees than firms that did not receive all they requested. PPP recipients were also more likely than nonrecipients to rehire employees they laid off once they received the funds, according to the survey.

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