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2021 Report on Employer Firms: Based on the 2020 Small Business Credit Survey

Small businesses continue to face significant challenges amid the COVID-19 pandemic, including weak demand, heightened expenses, and limited credit availability. Nearly one-third of firms say they’re unlikely to survive without additional government aid until sales recover.

The publication of this report seeks to document the toll the COVID-19 pandemic took on small businesses in 2020. At the time our survey was fielded, six months into the pandemic, closures, layoffs, depressed revenue, and uncertainty continued to plague small businesses across the country. Small business debt mounted and business owners plowed their personal savings into their firms to keep them afloat.

Our survey focuses on firms with between one and 499 employees that were still in business when the survey was fielded; it does not include businesses that are permanently closed.

The Outlook

For many of the 9,693 nationwide firms that responded, the outlook remains tenuous. Sales for 88% of the firms had not returned to pre-pandemic levels.

The majority of firms, 64%, said they would apply for another round of government aid if it were offered. Of those firms, 39% expected they would be unlikely to survive until sales returned to normal without further government assistance.

The survey found stark disparities by the race of business owners. While 57% of firms overall characterized their financial condition as “fair” or “poor,” this figure jumped to 79% for Asian-owned firms, 77% for Black-owned firms, and 66% for Latinx-owned firms.

Thirty-seven percent of firms expect that the most important challenge stemming from the pandemic in the next 12 months will be weak demand, followed by government-mandated restrictions or closures (53%) and supply chain disruptions (37%).

The Role of Government Aid

Almost all the small employer firms surveyed (91%) applied for emergency funding. Eighty-two percent of employer firms applied for Paycheck Protection Program (PPP) loans; 77% percent of PPP applicants received all the funding they sought.

Those that received all they requested were less likely to reduce payroll and more likely to rehire laid-off employees than firms that did not receive all they requested. PPP recipients were also more likely to rehire employees they laid off once they received the funds.

Financial Challenges

Almost every firm surveyed (95%) said the pandemic had impacted their business, with a majority (53%) expecting 2020 revenue to drop by more than one-quarter.

The share of firms that experienced financial challenges in the prior 12 months rose from 66% to 80% between 2019 and 2020.

Among the 80% of firms that experienced financial challenges in the prior 12 months, 62% used personal funds, while 55% cut staff hours/downsized operations.

Eighty percent of firms reported that pandemic-related business challenges impacted the owners’ personal finances, with 63% not drawing or reducing their salary and 51% paying business expenses with their personal funds.

Debt and Access to Credit

The number of firms carrying debt increased, as did those with a debt load of more than $100,000. Most owners whose firms experienced financial challenges in the prior 12 months used personal funds to help their businesses.

Seventy-nine percent of firms had debt outstanding, an increase from 71% in 2019.The amount of debt firms held also increased; the share of firms with more than $100,000 in debt rose from 31% in 2019 to 44% in 2020.

Forty-two percent of firms that applied for a loan, line of credit, or cash advance sought this funding from a large bank, a similar share as that in 2019 (40%). Forty-three percent turned to a small bank, up from 36% in 2019. In contrast, the share of firms that applied to an online lender fell from 33% in 2019 to 20% in 2020.

Firms with lower credit scores turned to online lenders (35%) and nonbank finance companies (23%) much more often than did their counterparts with higher credit scores (11% and 11%, respectively).

Suggested Citation

“2021 Report on Employer Firms: Based on the 2020 Small Business Credit Survey.” 2021. Small Business Credit Survey. Federal Reserve Banks.

The views expressed here are those of the authors and not necessarily those of the the Federal Reserve Banks. Data used in this report may be subject to updates or changes.