Insights & Implications from Barraza's "Pulse of America's Backbone" Study - The Impact of COVID-19 on U.S. Small Businesses
New research reveals that America’s Backbone expects a 50% decrease in revenue due to COVID-19
SAN FRANCISCO, April 18, 2020 - New research from Barraza & Associates reveals that COVID-19 is reducing small businesses’ revenues at a faster clip than they are able to reduce expenses. In response to market conditions, some firms will take on additional debt (secured and unsecured loans, mortgage refinancing, tapping credit cards) in addition to applying for grants, taking SBA loans and tapping into personal savings. There is interest in affordable credit with flexible terms, larger dollar amounts on secured loans and relaxed qualification requirements for unsecured loans.
An opportunity exists for small businesses’ suppliers/partners to help firms in this market environment, undoubtedly by removing/reducing bank and credit transaction fees and by providing flexible payment terms. But there is also expressed interest in other forms of assistance, including but not limited to, direction provided on how to make better use of specific business tools/solutions and product bundling for increasing business efficiency and value. Compassion, understanding and clear communications appear to be the attributes most desired in suppliers/partners.
The key findings from the study are described below followed by implications that can help small businesses.
America’s Small Businesses are the backbone of U.S. businesses and employment
There are 30.2 million small businesses in the U.S., which comprise 99.9% of all American businesses. 58.9 million people work for small businesses. That’s 47% of the country’s total employee workforce. Small businesses are clearly a very big contributor to the U.S. economy. The Small Business Administration reports that in 2014 they accounted for approximately 44 percent of U.S. economic activity and that their share of U.S. GDP was $5.9 trillion.
8 out of 10 businesses say that COVID-19 has significantly reduced their revenues
A large majority of small businesses believe that the COVID-19 situation has reduced their business revenue by “a lot” (52%) or “slightly” (30%).
The smallest firms (1 to 9 employees) are significantly more likely than larger firms (10+ employees) to report that business revenue has decreased “a lot” (58% vs. 44%).
COVID-19 is likely to reduce revenues by 50%, and to impact the smallest firms the most
Overall, small businesses believe that their revenues will be reduced by 50% (median) during the next 3 to 6 months.
However, the projected (median) decrease in revenue is 1.7X greater among the smallest firms (50%) than among larger firms (30%).
Revenues are projected to reduce at a faster clip than small businesses are able to reduce expenses
Business expenses are decreasing at a slower rate than revenues. While 82% of firms report that revenue has decreased, only 58% state that expenses have decreased.
When asked by what percentage their revenues and expenses are likely to be reduced during the next 3 to 6 months, businesses project a 30% decrease in expenses compared to a 50% decrease in revenues.
5 out of 10 small businesses anticipate the economy to stagnate/show slow growth for at least 6 to 12 months, and an additional 2 out of 10 expect a lengthy recession
Businesses with 10 to 99 employees are more optimistic about the economy. 4 out of 10 believe the economy will rebound within 2-3 months and grow just as strong or stronger than before COVID-19. In contrast, only one-quarter of businesses with less than 10 employees think the economy will rebound this quickly.
Small businesses are poised to take financial actions soon, including taking on unsecured and secured debt
In response to current market conditions, the top three financial actions that small businesses would definitely consider are, not surprisingly, applying for grants (39%), taking a low-interest loan from the Small Business Administration (37%) and tapping into personal savings (30%).
About one-third of small businesses would consider taking on debt through one or more of the following: applying for a private secured loan, applying for a private unsecured loan, refinancing their mortgage, and even borrowing against their existing credit cards.
One in five merchants said they might not pay their taxes.
Anticipated future borrowing amounts vary between $10K and $100K depending on firm characteristics
In the event businesses would have to borrow money to continue business operations, the median amount that all merchants would need during the next six months is $35,000. But this amount varies from a low of roughly $10,000 and up to $100,000 depending on the characteristics of the firm:
Anticipated Future Borrowing Amount (median)
Firm revenue of <$250: $ 12K
1 to 9 employees: $ 25K
10 to 99 employees: $ 60K
Firm revenue of $250K or more: $ 70K
Firm revenue of $500K+: $100K
Small businesses have requests of lenders and lending requirements, including larger dollar amounts on secured loans and relaxed qualification requirements for unsecured loans
Small businesses were asked to what extent they agreed with several statements about lender and lending requirements considering the market environment. A large majority strongly or somewhat agreed that:
Lenders need to provide easier access to affordable credit with flexible terms (79%)
Lenders should increase dollar amounts on secured loans (65%)
Qualification requirements (e.g., credit history, cash flow and reserves, balance sheets) should be relaxed for unsecured loans (65%)
Small businesses are willing to change their business model and/or update technology and soft skills to survive
Businesses will consider a variety of operational actions in response to market conditions, including a change in their business model, the tools/software they use, and whether/how to stay in business.
Respondents were asked to indicate whether they would definitely consider, might or might not consider, or definitely not consider taking twelve actions during the next 90 days in response to current market conditions:
Change in their business model. 51% said they would “definitely consider” one or more of the following actions:
Add a new product or service that you currently don’t sell (30%)
Sell to other types of customers that you have previously not sold to (29%)
Sell through additional sales channels (25%)
Start a new e-commerce business where you accept payment from customers via online payment solutions (18%)
Add a new e-commerce store to the current business where you would accept payment from customers via online payment solutions (18%)
Start a new subscription option (12%)
Adapt/update solutions & soft skills. 49% said they would “definitely consider” one or more of the following actions:
Increase the use of digital tools to continue to serve customers (34%)
Sharpen your business skills and credentials/re-educate yourself (28%)
Research new online software that may help your business survive or grow (24%)
Business operations. 45% said they would “definitely consider” one or more of the following actions:
Reevaluate staffing needs (31%)
Close the business temporarily (22%)
Close the business permanently (10%)
Opportunities exist for small businesses’ partners and suppliers to help firms in this market environment
There is an opportunity for companies or brands to help small businesses in this market environment, as only one-half of respondents said that America’s Backbone is getting help from them during this time.
When presented with eight different types of assistance/support that current or potential partners/suppliers could provide them in this market environment, the top 3 methods deemed “very helpful” were, removing or reducing bank fees (50%), reducing credit transaction fees (42%), and providing flexible payment terms (e.g., invoices, subscriptions, services) (39%).
There is also interest in other forms of assistance, with approximately 6 out of 10 small businesses saying it would be either “very helpful” or “somewhat helpful” for partners/suppliers to:
Provide free direction on how to make better use of specific business tools/solutions
Create a web portal that contains helpful ideas, tips, and advice
Combine/bundle its solutions/tools for better business efficiency and value
Provide expedited training on software solutions
Conduct frequent outreach by account representatives
In an open-ended question, when asked what specific services or actions, if any, they would look for from a partner/supplier during and/or post the pandemic to support them in rebuilding, sustaining and/or growing their business, firms most often cited financially related items. Some examples of verbatim comments included:
“anything they can think of to lower fees, wave payments, just anything that will help”
“a better line of credit”
“tolerate late payments”
“extended payment options; lower minimum purchase requirements”
“extending terms of payment to 90 days would be great”
“extend credit and no late fees or interest”
“postpone billing”
“reduced fees”
“good loans and less penalties”
“low-interest loans, extended time to repay”
“more flexible terms”
“ease of payment terms. Extended credit”
“maintain cash flow to our business. It could be in the form of an advance to repaid or earned out with growth”
“less fees would be helpful”
While not cited as often as financial items, there were interesting statements that dealt with supplier’s/partners’ understanding and communication style:
“effective communication”
“faster response with communication”
“understand that my cash flow has been impacted, not charge finance fees, late fees”
“I’ve been looking at my partner for a lot of support during this time because we need to be there for each other”
“increased communication and support”
“consideration and respect”
“communicate, listen to my needs for my business and listen to what my partners are capable of”
“patience and understanding”
“keep us informed in real-time on operating hours, inventory levels, etc.”
“continued clarity on inventory production, delivery, costs and discounts”
“just communicate more to us”
Implications to Keep America’s Backbone Strong
Since small businesses’ revenues are decreasing at a faster rate than expenses, organizations may want to explore ways to reduce fees, charges, and penalties, and offer flexible payment terms.
In this market environment, federal and private lending could offer larger dollars amounts and consider relaxing qualification requirements for certain types of loans.
Faced with a major economic downturn, many small businesses are open to changing their business model – what they sell, who they sell to, and where they sell. This represents opportunities for organizations to proactively demonstrate understanding by creating stronger partnerships through advisory services, sharing product information, training and improved communication.
Provide increased value to transitioning businesses by offering “bundled” solutions/tools/services that improve business efficiency at a lower total cost.
Ensure the above efforts affect the hardest-hit businesses, which are those with the fewest employees, since they represent the majority of all small businesses.
Continue to listen to the needs of America’s “Backbone” and provide support by taking action.
The Pulse of America’s Backbone Study - Research Methodology
An online survey was conducted by Barraza & Associates between April 2nd and April 16th, 2020. The response base included 339 U.S. small businesses that completed the survey. To qualify for the study, respondents had to be the owner/founder/partner, sole decision-maker or one of the key decision-makers, 22 to 69 years old, and the firm had to have revenues of at least $30,000 with no more than 99 employees. The 2019 median firm revenue of the respondents was $480,000, with 8 employees (median), have been in business 10 to 19 years (median range), and approximately 80% of the respondents had payroll. The precision of the Barraza online survey is measured using a confidence interval. In this case, the survey is accurate to within +/- 5.3 percentage points at the 95% confidence level.
About Barraza & Associates
Fueled by the significant fact that America’s Small Businesses employ just about half of Americans (47%), Barraza & Associates is committed to supporting this fundamental element of our economy through ongoing research that generates insights that help empower people and businesses to join and thrive in the US and global economy.
Our leading-edge methods, which employ advanced analytical approaches, combined with a team standard to produce the highest quality of client-tailored deliverables, means that Barraza enables our clients to create strong brands, build better products, and cultivate loyal customers among America’s Small (and larger) businesses. Thus, supporting and strengthening America’s Backbone through our clients who serve them.
Barraza & Associates, located in Silicon Valley, CA. Phone: 650.539.9651 or Email: al@barraza-consulting.com.
Data Sources Quoted:
1. Small Business Administration, Office of Advocacy, 2018 Small Business Profile
2. Small Business Administration, Office of Advocacy, Small Business GDP 1998 - 2014
Getting the Word Out About America’s Backbone
If you feel that the results from this study are valuable to a broad audience, please share this press release with the media, your colleagues in corporate America, and in government. Together, we can help shape societal and business practices that support and strengthen America's backbone.
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