Small business owners have become increasingly pessimistic about their company’s prospects despite federal relief efforts, according to a new survey.
Pandemic-related disruptions already had owners across the United States struggling and they had already laid off large numbers of employees by the time Congress passed its initial relief package, according to the preliminary results of the nationwide survey of more than 8,000 small-business owners.
The survey, conducted between March 28 and April 20, offers insight into how small businesses have responded to economic uncertainty amid the COVID-19 crisis.
It also provides evidence that owners of the smallest businesses—those with fewer than 10 employees—are often unaware that state and federal aid programs exist. Even owners familiar with government programs have misconceptions that may have discouraged them from participating.
“The COVID-19 crisis presents severe challenges for all small businesses, which account for the majority of companies in the United States,” says John Eric Humphries, an assistant professor of economics in Yale University and a principal investigator of the project.
“The data and insights we’ve collected can help policymakers design and implement effective measures to support small businesses in these extremely challenging times.”
Small business challenges
The survey, which researchers will update frequently, and an associated working paper, are part of a broader collaborative project designed to understand the challenges small businesses face amid the pandemic and to help them overcome the resulting economic turmoil.
“This study brings distinctive perspective, offering new detail and understanding of how small businesses are adapting and on their outlook for the future,” says David Wilkinson, the Tobin Center’s executive director. “The Tobin Center seeks to reduce time between research and impact. This scholarship provides government information on small business sentiment much faster than traditional alternatives—valuable information to have, given the rapidly changing landscape.”
On March 27, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which included $349 billion for funding the Paycheck Protection Program (PPP), which extends forgivable loans to small businesses. Despite this federal relief effort, small businesses have continued to lay off employees, the survey shows, and owners harbor increasingly negative views of the future.
More than 60% of respondents reported laying off at least one employee due to the pandemic, and 31% stated that they expected to have layoffs within the next 60 days. A quarter of respondents don’t expect to ever recover, and 31% reported believing that they have a 50% chance of going bankrupt or out of business within the next six months.
Business owners’ confidence in the future deteriorated steadily over the course of the survey. In the first week, 37% reported that they did not expect their companies to recover within two years. That number rose to 46% during the final week of this initial phase of the survey.
Publicize relief programs
The researchers found that businesses with fewer than 10 full-time employees had less awareness of government assistance programs than bigger firms, and had the slowest growth in awareness after enactment of the CARES Act when compared to businesses with 10 to 50 full-time workers.
Only about half of businesses with fewer than five employees reported knowing about government programs that could help them before the first round of PPP applications closed. That share remained below 70% through April 16, when the program’s initial funding was exhausted.
“Our findings support the idea that there was unequal access to federal aid, with larger firms being better informed and equipped to apply for relief,” Humphries says. “Policymakers should consider ways to better publicize relief programs and remove barriers to access so that the country’s smallest businesses can obtain assistance.”
The survey also gathered perspectives from individual business owners, including their insights on the specific challenges they face and what types of policy measures would most benefit them.
“Defer rent and mortgages,” said a small business owner in Michigan. “Ask credit cards to waive interest rates. Offer more grants to small business. Loans should be for the corporations, who are more likely to be able to pay back. Small businesses need the grant money.”