Urgency to Save Small Businesses Grows

• More funds for small businesses loan program expected soon
• Fed report says companies vulnerable to coronavirus shocks
• Small businesses provide 47.3% of private employment

During yesterday’s Task Force briefing, President Trump said loans worth $70 billion of the $350 billion coronavirus small business loan program have been processed. He will also ask Congress for an additional $250 billion for the program, which businesses and lenders say has suffered hiccups since its launch. Senate Majority Leader Mitch McConnell and House Speaker Nancy Pelosi agree that the Paycheck Protection Program needs more funding. The Federal Reserve is creating a program to finance some of these loans.

The money can’t come soon enough. A Fed report released yesterday showed that America’s small businesses have varying levels of financial health and many were unlikely to be resilient in the face of a severe revenue-shock. Nearly two-thirds (64%) of the 5,500 firms surveyed reported facing financial challenges in 2019. Thirty percent were classified as “at risk” or “distressed” overall. Less than half had obtained funds from a bank in the last five years, relying instead on owners’ savings or personal networks. Forty percent hold outstanding debt in amounts up to $100,000. Even among “healthy” companies, only 20% could continue business-as-usual with their cash reserves if confronted with a two-month loss in revenue. (see chart below)

“Small businesses nationwide now face unprecedented challenges as the country grapples with the significant economic and social effects of the COVID-19 pandemic,” said Claire Kramer Mills, assistant vice president at the New York Fed. “The data underscore that while small firms reported a strong end to 2019, many continued to deal with financial challenges, and even the healthiest of firms could face tough decisions amid a sustained loss in revenue. Furthermore, by shedding light on the channels through which firms may seek financial recourse, the data can inform the design of new loan and grant programs and offer insights on how to reach businesses in need.”

The National Federation of Independent Business said small business confidence dropped to its lowest level since October 2016 and suffered its sharpest fall ever in March. U.S. job openings fell slightly in February even before the widespread COVID-19 lockdown measures, according to the Labor Dept.

Small businesses make up 99.9% of businesses in the U.S. Keeping them whole and allowing them to pay their employees is vital if the economy is to bounce back once the virus is gone. By most accounts, we’re already in a recession and the shape of the recovery will be determined by the stimulus efforts, according to most policy experts. Here are some more stats to illustrate just how important these loans are:

• There are 30.7 million small businesses in the U.S. as of 2016
• They employ 59.9 million people, or roughly half of the private workforce
• A large proportion of private employment in decimated industries (accommodation and food services, arts and entertainment) is in small businesses (see chart below)
• Close to 300,000 small businesses export goods from the U.S.