Small Businesses During Covid-19: Data, Capital and Policy
The Federal Reserve Bank of Chicago recently convened leaders of small business intermediaries to discuss how Chicago’s small businesses are faring during the COVID-19 pandemic and share insights on how their organizations—chambers of commerce, incubators, community development financial institutions, banks, and policymakers—can help businesses in underserved communities.
The meeting began with an overview of current small business conditions in the Chicago area, drawing on recently released data from the U.S. Census Bureau’s Small Business Pulse Survey. In the discussion that followed, the panel of leaders of small business intermediaries highlighted aspects of small business relief programs that can present barriers for minority business owners and those in low- and moderate-income (“LMI”) neighborhoods. The panel also spoke to ways that intermediary organizations help small business owners navigate these relief programs, including by providing small businesses with technical and legal guidance and connections to lenders. Panelists cautioned against moving too quickly from a ‘rescue’ to ‘recovery’ phase; advised that data collection improvements would shed light on gaps in relief coverage; and stressed that interventions should take into account the greater impact of the pandemic on LMI neighborhoods and communities of color.
Current small business conditions
The U.S. Census Bureau’s Small Business Pulse Survey provides an overview of the current small business environment in the Chicago metropolitan area. The Pulse Survey is a weekly survey of small businesses that began the week of April 26 with results released every week for the United States, Illinois, and the Chicago metropolitan statistical area. Respondents to the survey are single-location businesses with 1 to 499 employees and annual receipts of at least $1,000. Three key takeaways emerged:
- First, respondents report that the public health crisis had large negative effects on most small businesses, especially businesses like restaurants and barbershops that were effectively shut down for months. Many small businesses have only a few days or weeks of cash on hand and have missed rent, utility, or payroll payments.
- Second, the majority of small businesses sought and received financial assistance from government relief programs. More than two-thirds of respondents received a Paycheck Protection Program (PPP) loan, which is eligible for forgiveness.
- Finally, the majority of respondents expected the public health crisis to impair their operations for at least four months, with the majority expecting the impairment to last more than six months (figure 1).
Figure 1. How much time do you think will pass before this business returns to its usual level of operations?
The survey data underscores that small businesses, which generally fail at a rate of 9 percent annually even during economic expansions, are at risk of failure as a result of the pandemic at a scale that is without modern precedent. The consequences of widespread small business failures include employees who face long stretches of unemployment that can damage or end their careers, and the simultaneous destruction of the life's work and family legacy of many small business owners. These failures may result in household and business insolvencies and disruptions in the provision of important goods and services to communities, which may exacerbate existing inequality in wealth, income, and access to goods and services for years to come.
Insights from small business intermediaries
Reflecting on the data presentation, leaders from small business intermediaries then shared how resource intensive it can be to help small businesses access relief programs, and offered perspectives on the many ways in which businesses require assistance under current conditions. Blanca Soto, executive director of the Little Village Chamber of Commerce, described her outreach to the many entrepreneurs and small proprietors of her community, where immigration status, language barriers, and lack of adequate technology are common barriers facing business owners. The Chamber’s staff are canvasing business locations in person to share information about relief programs and ways to adapt to the new environment, in addition to offering technical assistance. Bernard Loyd of Urban Juncture, a small business incubator based in the Bronzeville neighborhood, is also providing hands-on support to businesses in his community. Many of Urban Juncture’s clients need legal assistance to verify that they meet the criteria for PPP loans, as well as a connection to a banking partner. In addition to the technical barriers, Loyd noted the physical and mental health effects of the pandemic in his community, and the ways business owners have been psychologically impacted.
Lenders that serve small businesses see many of the same challenges, albeit from a different perspective. For Wintrust Financial, originating over 11,000 PPP loans in a matter of weeks required reassigning many staff to handle the influx of demand, according to Pete Connolly, chief credit officer. Bank staff have juggled keeping up with frequent program changes and clarifications from the Small Business Administration and assisting PPP applicants, while working with existing borrowers to provide loan forbearances when possible. Brad McConnell, CEO of Accion serving Illinois and Indiana, noted that in spite of the financial strain and abundant need for financial assistance among LMI business owners, Accion has seen applications for PPP loans slow considerably in recent weeks. McConnell attributes this decline as indication that many of the roughly one-third of small businesses in the Chicago metropolitan area that have not yet applied for PPP loans are not confident they are eligible, are unable to complete an application, or do not have adequate information or connections to an SBA-approved lender.
What does this mean for policymakers as the pandemic and social distancing measures extend into summer? First, the pressure to pivot from rescue to reopening may be counterproductive, according to Loyd and McConnell, as many businesses, especially those in LMI neighborhoods, are still in a rescue phase, and transitioning away from urgently needed rescue efforts too soon will make a sustainable reopening more challenging. Second, there is a need for more granular data for intermediaries and local policymakers to monitor conditions at a neighborhood level and direct limited resources. For example, publicly available data like the Census Small Business Pulse Survey and PPP data released thus far by the Small Business Administration do not include community-level data nor any information on the race and ethnicity of small business owners. Finally, noted Kenya Merritt, the city of Chicago’s chief small business officer, response efforts must be designed with an equity lens, accounting for the fact that proprietors in LMI areas and in communities of color often do not have the strong banking relationships and technical capacity to access relief programs. Programs that acknowledge and address these disadvantages, and that leverage the role of intermediaries, may have greater success in reaching otherwise underserved business owners and contributing to a more equitable recovery.