New Data: What COVID-19 Is Doing To Main Street SMBs

For most small businesses, the dawn of the new decade was filled with optimism for their futures.

Consumer confidence was at an all-time high, and unemployment at an all-time low. Consumer spending was strong, as were their household balance sheets.

For most SMBs, 2019 was a banner year, and 2020 was expected to be nothing less than spectacular. Two-thirds (66 percent) of SMBs expected to see their revenues grow beyond — even well beyond — what they had booked in 2019. The construction and manufacturing sectors were the most bullish, as consumers bought new houses and invested in improving the ones in which they were living. The boutique shops that lined Main Street USA, which got nearly all of their business face-to-face in their stores, expected that 2020 would be another great year.

It would only take three weeks — the 21 days between March 9 and March 27, during which consumers had already started to voluntarily shelter in place, and later when federal and many state and local governments issued guidelines that forced it thereby, restricting consumer access to non-essential physical establishments — for that thinking to shift completely.

Today, nearly all SMBs (those that remain in operation, that is) have been forced to divert that sense of optimism into a battle for their survival.

Already, in the space of those three weeks, 5 percent of the SMBs we surveyed reported closing their doors for good.

PYMNTS asked more than 200 SMB owners across a variety of sectors, sizes and geographies to tell us about their experiences before the crisis, and now in the midst of it. We went into the field last Wednesday (March 24) to understand, at an aggregate level, how COVID-19 has impacted the SMBs that line the Main Streets and the side streets of our communities.

We wanted to hear how they were doing, whether they had access to cash (and if so, how much and for how long), what they were doing to stem the tide of lost sales, and how they assessed the stability of their own businesses.

Most of the SMBs we asked aren’t new to the world.

They are the very businesses that make America’s cities, towns and urban centers lively and vibrant and interesting — and make our communities culturally, socially and economically strong. Many are businesses that have been around for years and employ people living in the community, whose paychecks help keep those local economies strong, too.

More than half of the businesses we talked to (52 percent) employ between 11 and 100 people, and one-third employ between three and 10. Thirty-eight percent report between $1 million and $5 million in annual sales, and 50 percent report between $100,000 and $1 million.

More than half of the retail businesses we studied operate shops that sell clothing, accessories, household furnishings and gifts; provide personal services such as hair and nail salons; and operate fitness studios, neighborhood convenience stores, grocers, car dealers and auto parts stores. The distribution of our SMBs spanned large urban centers (29 percent), large cities and towns (49 percent) and the small towns (22 percent) for which Main Street is the heartbeat of the community. In other words, this sample reflects the composition of SMBs on those Main Streets and side streets of the communities that we all call home.

We are grateful that so many took the time from trying to save their own businesses to share their thoughts with us.

We are heartbroken by what we heard.

The SMB’s Struggle For Survival

In just the last three weeks, nearly nine out of every 10 of those SMBs (84 percent) have seen their revenues decline, with more than half (55 percent) reporting significant declines.

In just 21 days.  

Sixty-two percent of those once-optimistic construction and manufacturing firms reported seeing their revenues decline significantly, and 60 percent of retail shops, personal services firms, coffee shops, bars and restaurants and fitness studios — shops that earn more than 75 percent of their sales in a physical store — have seen their sales plummet.

Even technology firms have been hit — with firms out of business, or at least not in business the way they once were, firms aren’t spending money. Sixty percent of technology firms have seen their sales decline by more than half, as well. Two-thirds of professional services firms — the web and graphic designers, boutique consultants and business consultants — have also seen their sales decline, despite their many valiant efforts to pivot their businesses online.

More than a quarter (26 percent) of SMBs surveyed doubt they’ll survive the COVID-19 pandemic. A third (33 percent) aren’t sure they will. For them, it all depends on how long the current lockdown/shutdown lasts and when consumer demand will return — and at what level.

Only 37 percent of SMBs remain confident that they will survive, keeping their doors open and their businesses afloat.

Those numbers are so stark that they are worth repeating.

One in four businesses doubt they will make it. Only four in 10 are confident they will.

All of them, even those who are the most optimistic about the future of their businesses, say it will be a long time after the COVID-19 pandemic subsides before their performance returns to what it was a month ago. Those who are most confident guess it will take 141 days — about 4.5 months. Those least optimistic say it will be 224 days — about 7.5 months.

In other words, not right away.

The Cash Flow Burden Shifts To The SMB Workforce

PYMNTS conducted this study before the historic $2 trillion stimulus bill was passed, and before there was clarity about the role the government would play in giving SMBs access to the capital they needed to stay afloat.

At that point in time, only 20 percent of SMBs we talked to that asked the government (at any level) for assistance received any, and only 17 percent that asked their banks for more funding had gotten it.

SMBs, therefore, had no choice but to take matters into their own hands to stem the tide of red ink. Many had few choices but to shift the financial burden to their employees given the abrupt lack of demand for and/or access to their products or services.

Nearly 30 (29.4) percent of all SMBs we surveyed said they closed their doors temporarily, either because they had no other choice or due to a lack of demand. Twenty-seven percent asked their employees to work fewer hours, 8.6 percent reduced employee salaries and 22.3 percent laid off their workforce.

The severity of those actions varied by how stable SMB owners felt about the future of their own businesses.

Perhaps not surprisingly, the 27 percent of SMBs in our study who said they don’t think they will survive have been more aggressive across the board in cutting hours (20 percent), reducing pay (16 percent) and lessening their workforce (31 percent). These businesses were also more than twice as likely to cut employee wages (15.7 percent) than either those businesses that are unsure about their future (6.3 percent) or those that are confident in their survival (6.2 percent). Those businesses seemed to have instead opted to cut back on hours worked while keeping headcount in place as they explore new ways to find sales.

The Cash Flow Burden Shifts To The SMB Owner

Most businesses, SMBs included, plan for rainy days, and have access to capital of some kind to smooth over those lumpy cash flow crunches. Very, very few have the capacity to survive — for even a few weeks — if their revenue goes to a fraction of what it once was, without warning and all at once.

And without any certainty about when demand may return.

That’s the situation that two-thirds of the SMBs we studied said they were forced to confront, since the majority of their revenue comes from face-to-face interactions — either via their storefronts or on-site at a consumer’s home or business establishment. Roughly two-thirds of the decline in sales is the result of a forced government shutdown of their physical locations. The fraction of business that these SMBs can get from other channels simply isn’t enough to keep the lights on, even as many tried to pivot their business creatively to capture more online volume.

The question then shifts to how much cash SMBs have on hand to ride things out, and the source(s) of that capital.

At first glance, the picture here looks pretty rosy.

Nearly three-quarters (72 percent) of the SMBs we studied reported having ready access to cash, either via a bank (44 percent) or other capital (31 percent). Yet three-quarters of them (76 percent) say they don’t have enough to last 25 days. Nearly half (48 percent) report having access to less than a week’s cash on hand. Only 8 percent of SMBs report having three or more months of capital to draw on to keep their businesses afloat.

Larger firms fare better — nearly half (47 percent) of SMBs with annual revenues of between $5 million and $10 million reported that they are likely to have ready access to cash, with only 23 percent of those with less than $100,000 in annual sales having any access to cash.

For many, the sources of that cash lie largely in their personal assets — personal investments (47.5 percent), personal credit cards (49.5 percent) and personal loans (23.1 percent).

Less than half (47 percent) of SMBs report having access to capital via a business credit card. The question for them is whether their issuer will keep their line open and available for them to use.

It may not be so clear-cut.

Doing The Math

Many of the at-risk SMBs get at least half of their capital from business credit cards. That’s the case for half of the SMBs that doubt they will survive the COVID-19 crisis and almost 40 percent of those that aren’t sure they will survive. More tragically, perhaps, is that for those SMBs that don’t think they will survive, the largest pool of capital they report having available is their personal credit cards (75 percent) along with their personal investments (50 percent).

The question that many SMBs are pondering at the moment is whether they will — or can — put their personal fortunes, including their homes or investments, at risk in order to save their businesses, particularly since even the most confident of the SMBs we studied see a sevenfold gap between the amount of cash they can tap and the number of months it will take to return to business as usual.

A Brighter Horizon?

The Farmers’ Almanac says that if March comes in like a lion, it will go out like a lamb.

There is no doubt that March 2020 has come in like a lion with a vengeance. And there is every hope that with the passage of the $2 trillion stimulus package on Friday (March 27) — and the $350 billion that is being allocated to SMBs — it may go out like a lamb.

Or at least begin to show some lamb-like qualities.

SMBs can apply through their banks for SBA assistance, which offers a loan of 2.5 times their average annual monthly compensation — for all employees and independent contractors on the payroll earning less than $100,000 a year — up to a cap. Loans will be forgiven if SMBs keep their employees on their payroll. Treasury Secretary Steve Mnuchin said Sunday (March 29) on Face the Nation that any SMB that has laid-off workers should hire them back, and that help is on the way. He said that more than 1,800 banks are ready and able to help SMBs in need.

It could be that in a matter of a month, SMBs will have access to the capital they need to rehire their workforces and serve consumers who are ready to spend. But time is of the essence, and it remains to be seen whether the money flows into SMBs’ bank accounts as quickly as Secretary Mnuchin predicted — and whether it more than offsets what banks and other lenders have cut from those SMBs’ usual sources of capital.

Even so, it may not be enough to save the many businesses that are teetering on the brink, or those that believe that the situation, for them, has moved beyond the point of no return.

But hopefully, enough money will flow quickly to enough SMBs — the ones that lend character to our cities, towns and Main Streets — so that when consumer demand comes back, they’ll be ready.

For better or worse, we’ll know pretty soon.