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Fed Survey Highlights Ongoing Stress to Small Businesses as COVID-19 Persists

  • Majority of small business owners say they have been financially challenged by COVID-19 in new Federal Reserve report
  • Business owners’ personal finances also impacted, with a majority using personal funds to help assist their venture during a downturn in revenues
  • Lending becomes more restricted, with more wariness among both borrowers and lenders

A new Federal Reserve report highlights how small businesses have continued to reel from the COVID-19 pandemic, with the vast majority indicating that they have experienced financial challenges, including personal financial losses, and that their sales remained below pre-pandemic levels.

The Small Business Credit Survey, undertaken by the 12 Federal Reserve banks, was fielded in September and October 2020 and received 9,693 responses. The annual survey highlights business trends in companies with fewer than 500 employees.

Financial challenges

Nearly all respondents (95 percent) said the pandemic had impacted their business. The most common reason for this impact was a change in demand, cited by 58 percent, while 55 percent said government mandates had affected their business and 52 percent said their company had been impacted by health and safety protocols.

Fifty-six percent said they had reduced operations due to pandemic conditions. Forty-eight percent modified their operations, and 26 percent closed temporarily.

Seventy-eight percent reported revenue decreases in the 12 months prior to the survey, with 53 percent expecting that their revenues will be down by more than 25 percent annually. Forty-six percent said they had reduced their workforce.

Four out of five respondents said they had experienced financial challenges during the pandemic. Sixty-five percent had struggled to pay operating expenses, with 45 percent having difficulty with debt payments and 44 percent having trouble keeping up with the rent.

Fifty-seven percent described their current financial situation as fair or poor, although the share was higher among certain groups and types of companies. Hospitality companies were most likely to describe their situation this way (80 percent), along with Asian-owned businesses (79 percent), Black-owned businesses (77 percent), Hispanic-owned businesses (66 percent), and companies employing one to four people (65 percent).

The most common way small business owners responded to these difficulties was to put personal funds into the operation, with 62 percent doing so. Fifty-five percent said they cut staff hours or downsized operations.

Eighty percent of small business owners said their personal finances had been impacted due to the pandemic. Sixty-three percent did not draw a salary or reduced it, and 51 percent paid business expenses with personal funds.

Seventy-nine percent held debt, up from 71 percent in 2019. The debt load also increased, with the share of respondents holding more than $100,000 in debt rising from 31 percent in 2019 to 44 percent.

Relief programs

Ninety-one percent said they had applied for financial relief during the pandemic. The Paycheck Protection Program was the most common avenue for relief, with 82 percent applying for a forgivable loan under this program. Seventy-seven percent said they had received their full funding request.

Among those who didn’t apply for a PPP loan, 37 percent said their business would not qualify for a loan or for forgiveness. Twenty-three percent considered the program or process to be too confusing, and 13 percent either couldn’t find a lender or sought other sources of funding.

Eighty-eight percent said their sales had not yet returned to normal. Thirty percent of those who were experiencing diminished sales said they did not think they would be able to survive without additional aid.


The report outlined a tighter lending market, with borrowers less likely to seek financing and lenders less likely to approve it. Thirty-seven percent sought financing, down from 43 percent in 2019. The share applying for financing for their operations rose from 43 percent to 58 percent, while those trying to secure financing for an expansion plummeted from 56 percent to 38 percent. Fifty-two percent asked for more than $100,000, up from 42 percent in 2019.

Seventy-six percent of applicants said they had been at least partially approved for a loan, line of credit, or cash advance – down from 83 percent in 2019. Approvals became harder to get as COVID-19 worsened; after March 1, the share of at least partial approvals fell from 81 percent to 70 percent.

Large banks remained the most common source of financing, although smaller institutions were becoming more popular. The satisfaction rate was highest for community financial development institutions, followed by credit unions and small banks. Online lenders and fintechs were utilized less and also had the lowest satisfaction rating at 18 percent.

Future expectations

While a net share of 58 percent said they expected their revenues to increase in the next 12 months in the 2019 survey, a net share of 1 percent expected revenues to decline over the coming 12 months in the 2020 survey. Fourteen percent on net said they expected to increase their staffing over the next 12 months, down from a net share of 38 percent in 2019.

Fifty-nine percent said they expected to see weaker demand in the coming year, while 53 percent anticipated that there would be further government-ordered restrictions on businesses. Thirty-seven percent said they expected to see more supply chain disruptions.

Sixty-four percent said they would seek more financial relief if it became available. Thirty-nine percent said they did not think their business would survive without it.

The Fed report cautions that the timing of the report is important for interpreting its results. The survey was issued after the expiration of the original PPP, and it was uncertain if further stimulus or a revival of the PPP would occur; no COVID-19 vaccines had been developed, either. At the same time, business restrictions had been largely eased due to declining COVID-19 infections.

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