The Evolution of a Pandemic: Small Businesses Navigate Shifting Challenges from Covid-19
Drawing on robust tracking data from the US Census Bureau, we take a look at the journey of America’s small businesses as they have navigated the pandemic.
Small businesses are big contributors to the U.S. economy. They are integral to driving innovation, jobs, and economic growth in their local communities. The Small Business Administration describes small businesses as “the lifeblood of the U.S. economy” creating two-thirds of new jobs and generating about half (44%) of the overall economic activity in the country.
But as we know, they were hit hard by the pandemic and are still trying to make their way through the recovery and the challenges they faced.
Through regular surveys of small business owners, the US Census has been monitoring the impact of Covid-19 on small businesses since the beginning of the pandemic (See “Source of Data” below). The Census data reveal how the impact of Covid-19 on small businesses has evolved over the past 18 months.
In Spring 2020, Covid-19 hit America’s small businesses like a fast-moving train, but that was just the beginning. Small businesses hit rock bottom quickly in Spring 2020. Since then they have contracted, adapted, been given a lifeline, and even found hope. All the while they have plodded their way through a range of challenges – beginning with a hit to their revenue in Spring 2020, to today, when they struggle more on the supply side.
The story is still being written. While some small businesses are “back to normal,” many others say they still have a long way to go.
Spring 2020: When the bottom dropped out
Covid-19 hit small businesses hard and fast in April 2020.
Though the recovery has been slow and uneven, Spring 2020 was the clear nadir of the pandemic for America’s small businesses. Its impact was most evident and acute at the very beginning.
- In April 2020, just a month after the White House declared Covid-19 a national emergency, 90% of US small business owners said the pandemic had a negative effect on their business, with 51% saying it had a “large negative effect.”
- At the time, three in four (74%) small businesses had experienced a drop in revenue, and 28% had let go of employees.
Most small businesses were not financially prepared in April 2020.
- In April 2020, nearly half of small business owners (48%) either had no cash on hand or just enough to make it a month or less. Only 17% of small businesses had enough cash on hand to last three or more months.
Summer and Fall 2020: Contraction, adaptation, and a lifeline
By Summer 2020, the pandemic had already decimated the operating capacity of America’s small businesses.
- In August 2020, over half of US small business owners (54%) said that their operating capacity had decreased, with one in five (19%) saying that their operating capacity had decreased by 50% or more.
Small business owners did what they had to do to adapt for their customers, their employees, and ultimately the survival of their businesses.
- According to a 2020 study by the Federal Reserve Bank, the majority of small business owners (63%) cut or reduced their own pay.
- With cuts in payroll and their own pay, business owners built up their cash reserves. Small businesses with 1 or more months of cash on hand increased from 41% in April 2020 to 65% in August 2020.
Most also sought financial assistance through federal loan programs. Summer 2020 brought some much-needed relief for small businesses, the majority of whom requested and received government assistance.
- By August 2020, 73% of small businesses had received a loan from the Paycheck Protection Program (PPP), and 22% had received an Economic Injury Disaster Loan (EIDL).
Nevertheless, at year’s end, small business owners were actually more pessimistic than they were in the Spring.
- In December 2020, nearly half of small business owners (46%) believed it would be at least 6 months before they returned to their normal level of operations, up from 31% in April 2020.
Spring 2021: Hope is in the air
With the rollout of the vaccine, the decline in Covid cases and the re-opening of society, Spring 2021 saw more optimism and normalcy among US small businesses.
- By April 2021, the percent of small business owners who said that Covid-19 had a large negative effect on their business had dropped to 27%, nearly half of what it was a year earlier (51%).
- While still a small minority, in April 2021, 15% of small business owners said they had returned to their normal level of operations, up from 8% in December 2020.
- And, one-third of small businesses (32%) expected to do some hiring over the next six months, up from 22% in December 2020.
Fall 2021: Labor and supply challenges
As a whole, things continue to improve for America’s small businesses, but some face a different challenge today. Where Spring 2020 presented challenges on the demand side, today many small business owners are struggling on the supply side – both in terms of labor and materials.
- In September 2021, one in three small business owners (30%) say that their employee headcount is lower today compared to pre-pandemic levels and 40% say that they will need to hire new employees in the next six months.
- Bottlenecks in domestic and global supply chains have also hit US small businesses hard, with 44% of small business owners today saying that they are struggling with domestic supplier delays, up from 29% in August 2020. The percent who report foreign supplier delays has also increased to 19% in September 2021, up from 9% in August 2020. Consequently, 14% of small businesses are experiencing in-house production delays today, and 25% report delays in delivery/shipping to their customers.
- On top of this, 70% of small business owners say that they are paying more for goods and services today than they were before the pandemic.
An Unfinished Narrative
The dust has not fully settled, and Covid-19 continues to impact our economy in general, and our small businesses in particular. Today, some small businesses are already “back to normal,” while others expect it will still take some time. Yet, Covid-19 has forever changed some small businesses.
- In September 2021, 38% of small businesses say that Covid had little effect or they are already “back to normal.” Nearly the same proportion, 39%, believe it will be at least 6 months before their business returns to normal. However, 11% of small business owners say they do not believe they will ever return to their normal level of operations.
- It is important to note that these are just the survivors. We don’t yet have a solid estimate of the number of small businesses that have permanently closed due to Covid-19.
And, of course, Covid’s impact on small businesses has been very uneven. Some industries, like professional services, took a hard hit but are already coming back. At the same time, others, like food service and the arts, have been devastated and continue to struggle. We’ll take a closer look at the differential impact by industry in a future blog post.
Source of Data: US Census Small Business Survey
The US Census has been tracking the impact of Covid-19 on US small businesses for over 18 months. Through over 50 different surveys of small businesses (defined as businesses with fewer than 500 employees), conducted from April 2020 to present, the Census has monitored the impact of Covid on small business revenue, employment, operations and outlook. The data are robust, with roughly 20,000 small businesses across the country responding in each measurement.
The Census has not yet published much from its research, but it has made the data publicly available. Unless otherwise cited, all data in this blog post come from the US Census Small Business Pulse Survey. More information about the survey can be found at: https://portal.census.gov/pulse/data/#methodology
This is the first in a series of blogs that we’ll post drawing on the Census surveys of small businesses as well as its surveys of Covid’s impact on American consumers. If you’re interested in receiving future posts, please subscribe to our blog.