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Fed Survey Finds Nonemployer Firms Often Failed to Access Relief Funds During the COVID-19 Pandemic

  • Nonemployer firms, which account for 81 percent of small businesses in the United States, often failed to apply for COVID-19 relief funds during the pandemic
  • Survey finds that two-thirds of these businesses did not apply for aid, with just 35 percent filing an application for a Paycheck Protection Program loan
  • Nonemployer firms were also less likely to be approved for assistance when they applied

Summary by Dirk Langeveld

Nonemployer small businesses often neglected to apply for COVID-19 relief funds during the pandemic, according to data recently published by Fed Small Business. Nonemployer firms were also more likely than employer firms to face financial challenges and rely on personal funds to sustain their business.

The Small Business Credit Survey 2021 Report on Nonemployer Firms, a supplement to a previous survey on credit access for employer firms, focused on companies that sustain a founder but do not have any employees. These firms, which are often owned by women or people of color, account for 81 percent of small businesses in the United States and are frequently service industries.

The survey collected 4,531 responses from nonemployer businesses between September and October 2020. While some nonemployer businesses are gig workers or independent contractors, 59 percent of respondents said their business is their primary source of household income. Seventy percent of respondents were considered small nonemployers with revenues of $100,000 or less.

Eighty-one percent of nonemployer firms said they had faced financial challenges over the past 12 months. Seventy-six percent said their revenues had declined, and 32 percent described their financial condition as poor.

While 91 percent of employer firms completed an application for COVID-19 business relief funds, only 66 percent of nonemployer firms did so. Just 35 percent of nonemployer firms applied for a Paycheck Protection Program loan, compared to 82 percent of employer firms. Among those who did not apply for a PPP loan, 51 percent said they did not think their business would qualify for the program.

Nonemployer firms were generally less likely to seek emergency funds and less likely to be approved when they did apply. Thirty-four percent of nonemployer firms did not apply for relief, compared to just 9 percent of employer firms. While 77 percent of employer firms received the full amount of PPP aid requested, just 57 percent of nonemployer firms did.

Seventy-three percent of small nonemployers and 70 percent of large nonemployers relied on personal funds to address revenue shortfalls, compared to 62 percent of employer firms. Thirty percent of nonemployer firms said they collected unemployment during the pandemic.

Nonemployer firms were slightly less likely to apply for financing, with 24 percent doing so in the 12 months before the survey – down from 29 percent in the 2019 survey. More than one-third of those who applied received no financing.

Nonemployer firms were less likely than employer firms to turn to small banks for financing, and more likely to seek funds through online lenders. However, small banks were more likely than online lenders to approve them for financing.

Respondents typically saw a long recovery ahead of them. Just 4 percent of nonemployer firms said they think their revenues will increase in the next 12 months, plummeting from 59 percent in the 2019 survey.

Ninety-four percent expected pandemic-related disruptions to continue over the next 12 months, although the survey was issued before the development of COVID-19 vaccines. Sixty percent said they anticipate weaker demand for their products or services, while 43 percent expected further government-mandated closures or restrictions and 28 percent believed it will be more difficult to access credit.

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