Three out of every 10 small businesses in the U.S. say they likely won't survive 2021 without additional government assistance during the, a survey from the Federal Reserve Bank shows. Considering there are roughly 30 million small businesses in the U.S., that means 9 million small firms are at risk of closing for good this year.
The outlook is even worse for minority-owned businesses: 8 in 10 said their company is in poor financial condition, according to the Fed survey, even after receiving limited help from Paycheck Protection Program (PPP) loans and other small business relief efforts during the pandemic.
Sam Myers, operations manager for Black-owned moving company Dillard Movers of St. Paul, Minnesota, described 2020 as a difficult year for the business and said that 2021 is shaping up to be the same.
"We were at the brink of caving in and going out to find full-time jobs," Myers said, referring to herself and her co-owner, James Dillard.
Myers said Dillard Movers' struggles began last March, when the pandemic hit with a fury just as the busy season for movers was slated to begin. Orders began to pick up again in June, Myers noted, but "three months is a long time to go without income, and the bills kept coming in."
Myers, 37, said the company managed to stay above water through loans from family members and the use of her personal credit cards. "I even Instacarted for a little bit in case we needed extra money," she said. "As a small business, we didn't have a lot of cushion."
Across all ethnic groups, small business owners like Myers spent most of 2020 taking extreme measures to keep their doors open, Federal Reserve researchers said. The Fed survey, conducted in September and October of last year, found that the percentage of small businesses with more than $100,000 in debt was 44% in 2020, up from 13% from 2019. The percentage did not include PPP loans, the Fed researchers said.
"Small business debt mounted and business owners plowed their personal savings into their firms to keep them afloat," the researchers said.
Nationwide drop in sales
The number of Americans who own small businesses fell 6% nationwide from October to December, economist Rob Fairlie of the University of California at Santa Cruz said last Thursday in testimony before the House Committee on Small Business. Ownership dropped 10% at minority-owned businesses, Farlie said, adding that the figure was particularly troubling for Black and Hispanic family businesses, who typically don't have the level of wealth or access to credit needed to keep a business going during an economic downturn.
"Prior to the pandemic, business ownership and revenues were already low for both groups," Fairlie told lawmakers. "But perhaps more importantly, there is a huge wealth gap. Many minority business owners will simply not have the financial resources to weather prolonged closures."
Federal lawmakers, hoping to help small businesses through the pandemic, authorized two rounds of the Paycheck Protection Program in 2020. However, many small business owners, particularly minority-led firms, saidof the first round of PPP.
Racial disparities in loans
Only 12% of Black and Hispanic business owners who applied for the forgivable low-interest loans under the federal Paycheck Protection Program initiative received them, according to a survey last spring by racial equality groups Color of Change and UnidosUS. Meanwhile, early loopholes in the program like Ruth's Chris Steak House, and Shake Shack to initially snag tens of millions of dollars in federal lending.
Data from the loan program released in December and analyzed by the Associated Press show that many minority owners desperate for a relief loanone until near the end of the PPP's life, while many more White business owners were able to get loans earlier in the program.
The first round of the program, which began in April of 2020 and ended in August, handed out 5.2 million loans worth a total of $525 billion. The money helped many businesses at least stay on their feet as local governments forced many to temporarily shutter or operate at diminished capacities amid the pandemic.
Even as the PPP struggled to meet its promise of aiding communities that historically haven't gotten the help they needed, the money was the most popular emergency funding lifeline among small business owners in 2020, the Fed survey said. Of the 82% of firms with employees that applied for a PPP loan, 77% said they received the entire amount of funding they asked for, and that the funding they received helped keep staff members on the payroll.
Myers' company got a $10,000 PPP loan, which she said was less than what she had requested.
"We applied again for a loan and only got approved for $2,900," Myers said. "I'm not sure what math they're using but it seems so unfair that these huge companies are getting the funds they need and we were not even able to get anything significant."
Congress approved a $284 billion third round of PPP loans in December. While companies that did not get loans previously have another chance at help, businesses hard-hit by the virus outbreak remain eligible to apply for another loan. The Small Business Administration has already distributed $35 billion of the third round of money, the agency said last week.