SMALL BUSINESS CREDIT SURVEY 2021 REPORT ON EMPLOYER FIRMS FEDERAL RESERVE BANKS of Atlanta • Boston • Chicago • Cleveland • Dallas • Kansas City • Minneapolis New York • Philadelphia • Richmond • St. Louis • San Francisco TABLE OF CONTENTS I ACKNOWLEDGMENTS 16 DEBT & FINANCING 16 Debt Outstanding II EXECUTIVE SUMMARY 17 Financial Services Providers 1 PERFORMANCE & CHALLENGES 18 Demand for Financing, Prior 12 Months 1 Revenue and Employment Change, 20 Nonapplicants Prior 12 Months 21 Financing Needs and Outcomes 2 Financial Condition 22 Financing Received 3 Effects of the Pandemic on Operations 4 Effects of the Pandemic on Sales 24 FINANCING APPLICATIONS and Supply Chain 24 Products Sought 5 Financial Challenges, Prior 12 Months 25 Loan/Line of Credit/Cash Advance Sources 6 Coping with Financial Challenges 26 Loan/Line of Credit/Cash Advance Approval and Use of Personal Funds 28 Lender Satisfaction 7 EMERGENCY FUNDING 29 DEMOGRAPHICS 7 Pandemic-Related Emergency Funding Needs 33 METHODOLOGY 8 PPP Application Outcomes and Expected Loan Forgiveness 9 PPP Applications and Outcomes 10 PPP Funding and Employment Actions 11 LOOKING AHEAD 11 Performance Expectations, Next 12 Months 12 Expected Challenges Resulting From Pandemic, Next 12 Months 14 Survival Expectations 15 Plans to Apply for More Emergency Assistance in the Future ACKNOWLEDGMENTS The Small Business Credit Survey is made possible through collaboration with business and civic organizations in communities across the United States. The Federal Reserve Banks thank the national, regional, and community partners who share valuable insights about small business financing needs and collaborate with us to promote and distribute the survey.1 We also thank the National Opinion Research Center (NORC) at the University of Chicago for assistance with weighting the survey data to be statistically representative of the nation’s small business population.2 Special thanks to colleagues within the Federal Reserve System, especially the Community Affairs Officers,3 and to representatives from the US Small Business Administration; America’s SBDC, the nationwide network of Small Business Development Centers; the US Department of the Treasury; the Consumer Financial Protection Bureau; the Opportunity Finance Network; Accion; and The Aspen Institute for their ongoing support for the Small Business Credit Survey. This report is the result of the collaborative effort, input, and analysis of the following teams: REPORT AND SURVEY TEAM4 Emily Corcoran, Federal Reserve Bank of Richmond Jessica Battisto, Federal Reserve Bank of New York Joselyn Cousins, Federal Reserve Bank of San Francisco Mels de Zeeuw, Federal Reserve Bank of Atlanta Naomi Cytron, Federal Reserve Bank of San Francisco Rebecca Landau, Federal Reserve Bank of New York Peter Dolkart, Federal Reserve Bank of Richmond Claire Kramer Mills, Federal Reserve Bank of New York Emily Engel, Federal Reserve Bank of Chicago Lucas Misera, Federal Reserve Bank of Cleveland Ian Galloway, Federal Reserve Bank of San Francisco Ann Marie Wiersch, Federal Reserve Bank of Cleveland Dell Gines, Federal Reserve Bank of Kansas City Janelle Williams, Federal Reserve Bank of Atlanta Desiree Hatcher, Federal Reserve Bank of Chicago Melody Head, Federal Reserve Bank of San Francisco SURVEY ADVISORS Mary Hirt, Federal Reserve Bank of Atlanta Claire Kramer Mills, Federal Reserve Bank of New York Treye Johnson, Federal Reserve Bank of Cleveland Mark Schweitzer, Federal Reserve Bank of Cleveland Jason Keller, Federal Reserve Bank of Chicago Garvester Kelley, Federal Reserve Bank of Chicago PARTNER COMMUNICATIONS LEADS Steven Kuehl, Federal Reserve Bank of Chicago Grace Guynn, Federal Reserve Bank of Atlanta Michou Kokodoko, Federal Reserve Bank of Minneapolis Mary Hirt, Federal Reserve Bank of Atlanta Lisa Locke, Federal Reserve Bank of St. Louis Craig Nolte, Federal Reserve Bank of San Francisco PARTNER OUTREACH LEADS Drew Pack, Federal Reserve Bank of Cleveland Brian Clarke, Federal Reserve Bank of Boston Emily Ryder Perlmeter, Federal Reserve Bank of Dallas Janelle Williams, Federal Reserve Bank of Atlanta Alvaro Sánchez, Federal Reserve Bank of Philadelphia Javier Silva, Federal Reserve Bank of New York OUTREACH TEAM Marva Williams, Federal Reserve Bank of Chicago Leilani Barnett, Federal Reserve Bank of San Francisco Brian Clarke, Federal Reserve Bank of Boston We thank all of the above for their contributions to this successful national effort. Ann Marie Wiersch, Community Development Policy Advisor, Federal Reserve Bank of Cleveland The views expressed in the following pages are those of the report team and do not necessarily represent the views of the Federal Reserve System. 1 For a full list of community partners, please visit www.fedsmallbusiness.org. 2 For complete information about the survey methodology, please see Methodology. 3 Joseph Firschein, Board of Governors of the Federal Reserve System; Karen Leone de Nie, Federal Reserve Bank of Atlanta; Prabal Chakrabarti, Federal Reserve Bank of Boston; Daniel Sullivan, Federal Reserve Bank of Chicago; Emily Garr Pacetti, Federal Reserve Bank of Cleveland; Roy Lopez, Federal Reserve Bank of Dallas; Tammy Edwards, Federal Reserve Bank of Kansas City; Alene Tchourumoff, Federal Reserve Bank of Minneapolis; Tony Davis, Federal Reserve Bank of New York; Theresa Singleton, Federal Reserve Bank of Philadelphia; Christy Cleare, Federal Reserve Bank of Richmond; Daniel Davis, Federal Reserve Bank of St. Louis; and Laura Choi, Federal Reserve Bank of San Francisco. 4 The Report and Survey Team appreciates the thoughtful comments, managerial support, and guidance from the following colleagues: Lisa Nelson from the Federal Reserve Bank of Cleveland; Brent Meyer, Veronika Penciakova, Nick Parker, and Kevin Foster from the Federal Reserve Bank of Atlanta; and Barbara Lipman and Marysol Weindorf from the Board of Governors of the Federal Reserve System. Valuable assistance with this publication was provided by Heather Ann from the Federal Reserve Bank of Cleveland. SMALL BUSINESS CREDIT SURVEY | 2021 REPORT ON EMPLOYER FIRMS i EXECUTIVE SUMMARY The Small Business Credit Survey (SBCS), SURVEY FINDINGS The COVID-19 pandemic has had a collaboration of all 12 Federal Reserve wide-reaching effects on small The 2020 SBCS yielded 9,693 responses Banks, provides timely information about business operations. from a nationwide convenience sample small business conditions to policymakers, of small employer firms with 1–499 full- The vast majority of firms (95%) service providers, and lenders. In 2020, the or part-time employees (hereafter “firms”) reported that the pandemic impacted their survey reached more than 15,000 small across all 50 states and the District of business. For example, 26% closed businesses,5 gathering insights about the Columbia. This publication summarizes temporarily, 56% reduced their operations, COVID-19 pandemic’s impact on small data for firms that were currently operating and 48% modified their operations. businesses, as well as business performance or temporarily closed at the time of and credit conditions. Of those that faced disruptions to survey and does not include permanently operations, firms most commonly cited The survey was fielded in September and closed businesses. changes in demand (58%), government October 2020, approximately six months mandates (55%), or the need to adapt Firms’ financial conditions declined sharply after the onset of the pandemic. The timing to health and safety guidelines (52%) as between 2019 and 2020.7 Firms owned by of the survey is important to the interpreta- reasons their businesses were affected. people of color reported greater challenges. tion of the results. At the time of the survey, Fifty-three percent of firms expected total Most firms reported declines in revenues the Paycheck Protection Program (PPP) sales revenues for 2020 to be down by and employment in the 12 months prior authorized by the CARES Act had recently more than 25% because of the pandemic. closed, and prospects for additional stimulus to the survey. Seventy-eight percent funding were uncertain. Additionally, many of firms reported decreases in revenues, More than 90% of firms sought emergency government-mandated business closures and 46% reduced their workforce. funding to weather the financial impacts had been lifted as the number of new Fifty-seven percent of firms characterized of the pandemic. COVID-19 cases plateaued in advance of their financial condition as “fair” or “poor.” Ninety-one percent of firms applied for a significant increase in cases by the This figure jumps to 79% for Asian-owned some type of emergency funding during year’s end.6 firms and 77% for Black-owned firms. the pandemic. The PPP was the most The 2020 survey findings highlight the The share of firms that experienced commonly used program; 82% of magnitude of the pandemic’s impact on financial challenges in the prior 12 months employer firms applied. Seventy-seven small businesses and the challenges they rose from 66% to 80% between 2019 and percent of PPP applicants received anticipate as they navigate changes in the 2020. In response to those challenges, all of the funding they sought. business environment. The 2020 SBCS finds firms most commonly used personal funds Firms that sought PPP funds most that few firms avoided the negative impacts (62%) or cut staff hours/downsized frequently submitted their applications of the pandemic. Furthermore, the findings operations (55%). through small (48%)