Alignable: SPECIAL REPORT -- COVID Crisis Relief Needed To Keep Small Business Economy Afloat

December 2020 / Eric Groves – Alignable, Inc. 

85% Of Small Business Owners Need Additional Relief

• 48% Risk Failure By Year's End
• Retail / Consumer Services Sectors Hit The Hardest
• Only 43% Are Confident They'll Survive Through June 2021

Introduction:

Alignable has collected over 556,000 business owner responses, since mid-March, mapping the Coronavirus Impact and Recovery of the Small Businesses Economy across the United States and Canada. Unless otherwise noted, insights covered in this report were derived from over 6,300 U.S. business owner poll responses collected between 12/5/2020 and 12/7/2020.

This special report was written during the week of December 7th and explores the critical role additional financial relief will play in supporting the small business economy through the crisis and into the recovery in 2021. 

The State Of The Small Business Economy

• 68% Of SMBs Experiencing Negative Financial Impact
• Percentage Of Fully Reopened On The Decline
• 48% Risk Closure By Year's End

This section is a short recap of our December Road To Recovery Report published 12/1/20. You can find the full report here.

The financial impact of the COVID Crisis saw a massive reversal in November, with the percentage of business owners experiencing significant impact jumping 7% to 50%. The last time we were at or above 50% was back in June.  Looking at the chart below, you can see how businesses who thought the crisis was heading in the right direction earlier in the fall now feel differently. 

We also saw a significant decline in businesses reporting their status as “fully reopened” over the past two months.  This decline, highlighted in red, can be seen shifting most noticeably into temporarily closed with intent to reopen status. However, with our latest poll, now 3% say they've closed permanently.

48% At Risk Of Closure

We asked business owners to estimate the percentage of 2019’s 4th quarter revenue that they’ll generate in 2020. Then we asked them to estimate the percentage of their 2019 4th quarter revenue they would need to stay in business into 2021. 

Overall, 48% of businesses estimated generating revenues below what they needed to stay in business.  This represents a 6% increase since September where we reported 42% being at risk. As we dove deeper into B2C and B2B sectors, we found slight differences with 50% and 47% respectively reporting being on the brink.  Some of the hardest hit industries include:

• Travel/Hospitality: 62% at risk
• Gyms and Fitness: 61% at risk
• Beauty Salons: 60% at risk
• Restaurants: 45% at risk
• Entertainment: 43% at risk

Additional Financial Relief Is Needed NOW

• 9 Months Into The Crisis -- 85% Say Additional Relief Is Important For Survival (48% Say It's Critical)
• Start By Getting Money To Businesses Who Need It Most
• Median Grant Needed: $35,000

It was encouraging to see bipartisan support for financial support finally emerge from Washington.  It’s been nine long, frustrating months for small business owners as they’ve worked tirelessly to save their businesses, livelihoods, and the jobs of everyone they employ. Earlier in the COVID Crisis, 50% of business owners took advantage of the CARES Act PPP Relief Funding to get through what was billed as a short-term (8-week period) of financial impact.

In our most recent poll, we now find that 85% of small business owners consider additional financial relief significantly important for their survival until mid-2021, when we are all hopeful this crisis will be under control. 

Given the opportunity to access funding, 28% more businesses plan to apply for relief than did back in April 2020 (64% today vs. 50% in April).  And now only 3% of business owners see additional relief as non-essential for survival. 

3 Important Lessons Learned From Initial PPP Funding

#1: Get Funding To Businesses That Need It Most:

• The Treasury Department should focus on Regional Banks and On-Line Providers for distribution.  The major money center banks demonstrated they were more interested in protecting key client relationships and earning fee income than supporting SMBs.
• 24% of SMBs that applied had their loans rejected.  Businesses with the highest rejection rates were minority-owned, women-owned and veteran-owned.  These businesses have suffered disproportionately due to their lack of access to funding. 
• Minority-owned businesses: 87% need new funds to survive (56% reported a critical need, 31% say it's significantly important), 10% say it's somewhat important and 3% say it's not important. Of these businesses, 74% would apply if additional funding is made available. 
• Women-owned businesses: 88% said they need new funds (52% say it's critical, 36% significant), 10% somewhat, 2% not important.  65% would apply if additional funding is made available.
• Veteran-owned businesses: 77% said they need new funds (40% critical, 37% significant), 19% somewhat, and 4% not important.  53% would apply if additional funding is made available.
• Hard-Hit Industries:
  • Restaurants: 95% need relief (62% critical, 33% significant)
  • Travel/Hospitality: 95% need relief (59% critical, 36% significant)   
  • Beauty Shops: 90% need relief (60% critical, 30% significant)
  • Consumer Retail: 89% need relief (52% critical, 37% significant)
  • Entertainers: 87% need relief (54% critical, 33% significant)

#2: Focus On Businesses With Fewer Than 100 Employees

• Solopreneurs make up 81% of all SMBs and while the initial PPP Relief Funding didn’t preclude them from participation, the structure discouraged and confused many of them. 
• Businesses with fewer than 100 employees represent over 95% of total businesses.  These businesses are often the backbone of local economies. And smaller firms typically don’t have access to the types of banking relationships that were necessary to have a leg up in the initial funding rounds last spring. 

#3: We’re Not Talking Million-Dollar Loans

• The median loan needed to get through the next 6 months is $35,000 and the mean loan size is $110,000. 
• 82% of the 5,148 business owners surveyed were looking for loan amounts of $100,000 or less.
• These grants / forgivable loans need to be flexible in terms of how the proceeds are used.  Business owners have been incredibly creative in how they've managed their businesses over the past 9 months in order to stay alive. And the government should provide them with the flexibility to use the proceeds for what these entrepreneurs need to get their businesses back on track. 

How Do They Intend To Use The Money?

For the most part, small business owners are incredibly loyal to their employees, and when we surveyed our members on how they would deploy funds received, it was not surprising to see employee salaries at the top of the list.  Paying their landlords and catching up on past due bills were the next two most popular areas for spending, followed by giving some much-needed funding to themselves.  Here’s how the use of proceeds stacked up: 

In many cases, it’s clear PPP relief may not be enough to get some businesses through to the point of recovery. 

With that in mind, we asked our members to share what other financial support would help them the most.

Their Top 3 suggestions were:

• Rent assistance (something we could learn from Canada’s program)
• Short-term, 1-year, super low interest (1%) loans
• Longer-term, 30-year loans with low (4%) fixed interest rates. 

Administration Support & Continuity Is Important

• Message To Trump: Get The Stimulus Plan Done.
• Message To Biden: We Need A Plan To Open Businesses & Bring Customers Back.  

We asked our members to share the key messages they would like to deliver to the current and future administrations in Washington.  Here’s the constructive direction our members wanted to share. 

To the Trump administration: the most impactful actions you can take are to get a stimulus program in place, and expedite the distribution of safe vaccines. 

To the Biden administration: If the current administration fails to deliver on a stimulus program, that needs to be your top priority.  Beyond that, you need to take actions to open businesses, encouraging customers to return.  Finally, you need to give small business owners a tax break. 

The Retail / Consumer Services Industry

• 77% Purchased 50% of Less Inventory
• 48% Report Supply Chain Issues
• 57% Report Shop Small Saturday and Cyber Monday Underperformed

Many of the hardest hit businesses in the Small Business Economy are in the Retail and Consumer Services industries.  These businesses depend on face-to-face interactions with customers and many have not been able to fully re-open since March. 

We polled roughly 5,000 of these businesses in our latest poll to gain an understanding for how they were doing during this critical 4th quarter of 2020. 

The leading indicator for many of these businesses is the inventory they have on hand to sell during the holiday season.  Their purchases are typically made well in advance of the holidays and their ability to get access to inventory that's in high demand is something they depend on.   Here’s what we found in terms of the percentage of last year’s Q4 inventory purchased for Q4 2020:

We were also interested to see the percentage of businesses which were struggling to gain access to the inventory they wanted to purchase. We found 48% of these businesses were having challenges with their supply chains. 

For those businesses experiencing difficulties accessing inventory, 30% reported they were unable to access 50% or more of the inventory needed.  

See other reports on Main Street Retail

In past years, due in great part to Amex’s advertising campaign, the Shop Small event on the Saturday following Thanksgiving has been a big attention and business generator for Main Street retail businesses.  When we asked them about how that program along with cyber-Monday impacted their revenues, we found 57% of businesses reported these events being less successful with 42% reporting it was significantly less successful than the prior year. 

ABOUT THE ALIGNABLE RESEARCH CENTER

Alignable is the largest online referral network for small businesses with over 6 million members across North America.

We established our research center in early March 2020, to track and report the impact of the Coronavirus on small businesses, and to monitor recovery efforts, informing the media, policymakers, and our members.

For more details about any of these findings, including the methodology behind our polls, please contact Chuck Casto at press@alignable.com.

FOR ADDITIONAL COVID-RELATED POLLS & INSIGHTS FROM ALIGNABLE:

Visit Alignable's Research Center Home Page

Visit Alignable's COVID Resource Center