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SURVEY
2021 REPORT ON
EMPLOYER FIRMS
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2021 Small Biz Credit Survey: Firm Performance, Financing Needs, Satisfaction, Exams of Mechanical Systems Design
The Small Business Credit Survey 2021 report provides insights into the performance, financing needs, and satisfaction of employer firms during the COVID-19 pandemic. The survey covers various aspects, including revenue change, demand for financing, financing needs and outcomes, and satisfaction with primary financial services providers.
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Atlanta • Boston • Chicago • Cleveland • Dallas • Kansas City • Minneapolis
New York • Philadelphia • Richmond • St. Louis • San Francisco
F E D E R A L R E S E R V E B A N K S o f
SMALL
BUSINESS
CREDIT
SURVEY
2021 REPORT ON
EMPLOYER FIRMS
TABLE OF CONTENTS
I ACKNOWLEDGMENTS
II EXECUTIVE SUMMARY
1 PERFORMANCE & CHALLENGES
1 Revenue and Employment Change,
Prior 12 Months
2 Financial Condition
3 Effects of the Pandemic on Operations
4 Effects of the Pandemic on Sales
and Supply Chain
5 Financial Challenges, Prior 12 Months
6 Coping with Financial Challenges
and Use of Personal Funds
7 EMERGENCY FUNDING
7 Pandemic-Related Emergency
Funding Needs
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
16 DEBT & FINANCING
16 Debt Outstanding
17 Financial Services Providers
18 Demand for Financing, Prior 12 Months
20 Nonapplicants
21 Financing Needs and Outcomes
22 Financing Received
24 FINANCING APPLICATIONS
24 Products Sought
25 Loan/Line of Credit/Cash Advance Sources
26 Loan/Line of Credit/Cash Advance Approval
28 Lender Satisfaction
29 DEMOGRAPHICS
33 METHODOLOGY
SMALL B USINESS CREDIT SURVEY | 2021 REPORT ON EMPLOYER FIRMS ii
5 The Small Business Credit Survey collects information from both employer and nonemployer firms. The 2020 survey yielded 4,531 responses from nonemployers; the findings for nonemployers will be explored in a separate report. Additionally, the survey yielded approximately 1,000 responses from permanently closed firms and new businesses that had not yet begun operations. 6 Johns Hopkins Coronavirus Resource Center, https://coronavirus.jhu.edu/data/new-cases. 7 In this summary, the years specified in year-over-year comparisons refer to the year in which the survey was fielded. Some survey questions pertain to the prior 12 months, which include the final months of the preceding year.
The Small Business Credit Survey (SBCS),
a collaboration of all 12 Federal Reserve
Banks, provides timely information about
small business conditions to policymakers,
service providers, and lenders. In 2020, the
survey reached more than 15,000 small
businesses,^5 gathering insights about the
COVID-19 pandemic’s impact on small
businesses, as well as business performance
and credit conditions.
The survey was fielded in September and
October 2020, approximately six months
after the onset of the pandemic. The timing
of the survey is important to the interpreta-
tion of the results. At the time of the survey,
the Paycheck Protection Program (PPP)
authorized by the CARES Act had recently
closed, and prospects for additional stimulus
funding were uncertain. Additionally, many
government-mandated business closures
had been lifted as the number of new
COVID-19 cases plateaued in advance of
a significant increase in cases by the
year’s end.^6
The 2020 survey findings highlight the
magnitude of the pandemic’s impact on
small businesses and the challenges they
anticipate as they navigate changes in the
business environment. The 2020 SBCS finds
that few firms avoided the negative impacts
of the pandemic. Furthermore, the findings
reveal disparities in experiences and out-
comes across firm and owner demographics,
including race and ethnicity, industry, and
firm size. While this report aggregates data
on all small employer firms, it includes some
details for select demographics. Future
publications will explore the impact of the
pandemic on different subsets of businesses.
SURVEY FINDINGS
The 2020 SBCS yielded 9,693 responses
from a nationwide convenience sample
of small employer firms with 1–499 full-
or part-time employees (hereafter “firms”)
across all 50 states and the District of
Columbia. This publication summarizes
data for firms that were currently operating
or temporarily closed at the time of
survey and does not include permanently
closed businesses.
Firms’ financial conditions declined sharply
between 2019 and 2020.^7 Firms owned by
people of color reported greater challenges.
Most firms reported declines in revenues
and employment in the 12 months prior
to the survey. Seventy-eight percent
of firms reported decreases in revenues,
and 46% reduced their workforce.
Fifty-seven percent of firms characterized
their financial condition as “fair” or “poor.”
This figure jumps to 79% for Asian-owned
firms and 77% for Black-owned firms.
The share of firms that experienced
financial challenges in the prior 12 months
rose from 66% to 80% between 2019 and
2020. In response to those challenges,
firms most commonly used personal funds
(62%) or cut staff hours/downsized
operations (55%).
Seventy-nine percent of firms had debt
outstanding, an increase from 71% in
2019. The amount of debt firms hold also
increased; the share of firms with more
than $100,000 in debt rose from 31% in
2019 to 44% in 2020.
The COVID-19 pandemic has had
wide-reaching effects on small
business operations.
The vast majority of firms (95%)
reported that the pandemic impacted their
business. For example, 26% closed
temporarily, 56% reduced their operations,
and 48% modified their operations.
Of those that faced disruptions to
operations, firms most commonly cited
changes in demand (58%), government
mandates (55%), or the need to adapt
to health and safety guidelines (52%) as
reasons their businesses were affected.
Fifty-three percent of firms expected total
sales revenues for 2020 to be down by
more than 25% because of the pandemic.
More than 90% of firms sought emergency
funding to weather the financial impacts
of the pandemic.
Ninety-one percent of firms applied for
some type of emergency funding during
the pandemic. The PPP was the most
commonly used program; 82% of
employer firms applied. Seventy-seven
percent of PPP applicants received
all of the funding they sought.
Firms that sought PPP funds most
frequently submitted their applications
through small (48%) and large (43%)
banks. Of firms that applied through large
banks, 95% had an existing relationship
with their bank prior to applying for a PPP
loan. Eighty-three percent of small bank
applicants had an existing relationship.
EXECUTIVE SUMMARY
SMALL B USINESS CREDIT SURVEY | 2021 REPORT ON EMPLOYER FIRMS iii
Access to PPP funds bolstered firms’
ability to retain or rehire employees.
Forty-six percent of firms that received
all of the PPP funding they sought reduced
the number of employees on their payroll,
compared to 71% percent of firms that
received none of the PPP funding for
which they applied. In addition, PPP
recipients were more likely to rehire
employees they laid off.
Sixty-four percent of firms would apply
for additional government-provided
assistance if it were made available.
Of these firms, 39% expected they would
be unlikely to survive until sales return
to “normal” (that is, 2019 levels) without
further government assistance.
At the time of the survey, most firms
expected sales pressures and pandemic-
related challenges to persist.
Firms anticipate a challenging year
ahead. Firms were more likely to expect
a decrease in revenues in the next 12
months as opposed to an increase.
Furthermore, respondents were less
likely than in previous years to expect an
increase in employment. The net share
of firms expecting employment growth in
2020 was 14%, compared to 38% in 2019.
Eighty-eight percent of firms indicated
that sales had not yet returned to normal.
Of those firms, 30% projected it would
be unlikely that they could survive
until sales recover without additional
government assistance.
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 govern-
ment-mandated restrictions or closures
(26%) and credit availability (13%).
The most important anticipated challenge
differed by race and ethnicity of the owners.
For Black-owned firms, credit availability
was the top expected challenge, while
Asian-owned firms disproportionately
cited weak demand.
Applications for non-emergency financing
decreased from 2019 to 2020.
The share of firms that applied for
financing declined from 43% in 2019
to 37% in 2020.^8
Compared to 2019, firms were consider-
ably more likely to seek financing in order
to meet operating expenses (58% versus
43% in 2019) and less likely to seek funds
for expansion (38% versus 56% in 2019).
The share of applicant firms that received
all the financing they sought declined from
51% in 2019 to 37% in 2020.
Approval rates on loans, lines of credit,
and cash advances declined in 2020.
The share of applicant firms that were
at least partially approved for loans, lines
of credit, and cash advances declined
from 83% in 2019 to 76% in 2020.
Following the start of the pandemic, firms
were less successful at obtaining loans,
lines of credits, and cash advances. Prior
to March 1, 2020, 81% of applicants were
approved for at least some of the funds
they sought. After March 1, only 70% were
at least partially approved.
Banks remain the most common source
of credit for small businesses; use of online
lenders declined.
Forty-two percent of firms that applied
for a loan, line of credit, or cash advance
sought this funding from a large bank,
similar to the share that applied at a large
bank 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).
Among applicant firms that were approved
for at least some financing, net satisfac-
tion was highest for credit unions (81%),
followed by small banks (74%) and large
banks (60%). Online lender applicants
were least satisfied, as net satisfaction
with online lenders declined from 37% in
2019 to 25% in 2020.
ABOUT THE SURVEY
The SBCS is an annual survey of firms with
fewer than 500 employees. These types of
firms represent 99.7% of all employer estab-
lishments in the United States.^9 Respondents
are asked to report information about their
business performance, financing needs
and choices, and borrowing experiences.
Responses to the SBCS provide insights on
the dynamics behind lending trends and
shed light on various segments of the small
business population. The SBCS is not a
random sample; results should be analyzed
with awareness of potential biases that are
associated with convenience samples. For
detailed information about the survey design
and weighting methodology, please consult
the Methodology section.
8 The share of firms that applied for financing in 2020 excludes firms that applied only for emergency funding, such as PPP. 9 US Census Bureau, 2018 County Business Patterns. EXECUTIVE SUMMARY (Continued)
PERFORMANCE & CHALLENGES Financial Condition 1 Percentages may not sum to 100 due to rounding. 2 The characteristics shown in darker bars are related to self-reported financial condition at a significance level of 0.05 using a logistic regression. For the demographics shown, the reference groups are Non-Hispanic White-owned firms, firms with 1-4 employees, and firms in the non-manufacturing goods production and associated services industry (54%, not shown). 3 Additional variables were tested for statistical significance, including credit risk, gender of owner(s), revenues, and age of firm. Along with the variables shown in the figure, the gender of the owner(s), self-reported credit risk of the firm, and the firm’s age are also related to financial condition at a significance level of 0.05. 4 Select industries shown. 57% of firms reported that their financial condition was fair or poor.
FINANCIAL CONDITION, At Time of Survey^1 (% of employer firms)
All employer
firms N=9,
Firms owned by people of color, smaller firms, and leisure and hospitality firms were in weaker financial condition.
SHARE OF FIRMS IN FAIR OR POOR FINANCIAL CONDITION, At Time of Survey 2,3^ (% of employer firms)
By number of employees
1–4 N=4, 415
5–49 N=4, 815
50–499 N= 434
By industry^4
Leisure and hospitality N=1,
Healthcare and
education N=1,
Retail N=1,
Manufacturing N=1,
Non-Hispanic Asian N= 663
Non-Hispanic Black
or African American N=1,
Hispanic N=
Non-Hispanic White N=6,
By race/ethnicity of owner(s)
Very good
Good
Fair
Poor
Excellent
PERFORMANCE & CHALLENGES Effects of the Pandemic on Operations 95% of employer firms reported that the pandemic affected their operations.
EFFECTS OF THE PANDEMIC ON BUSINESS OPERATIONS^1 (% of employer firms) N=9,
Reduced operations
Temporarily closed
Modified operations
Expanded operations
No significant impact
1 Respondents could select multiple options. For example, a firm may have temporarily closed, and then reopened with reduced operations. “Temporarily closed” includes firms that remained closed at the time of survey and firms that had closed for a time but have since reopened. 2 Respondents could select multiple options. 3 Response option “other” not shown in chart. See Appendix for more detail.
DRIVERS OF OPERATIONAL CHANGES DURING THE PANDEMIC 2,3^ N=8,
(% of employer firms that temporarily closed or reduced/modified operations)
Change in demand for
products/services
Government mandate
affecting my business
Needed to adapt to
health/safety guidelines
Government mandate
affecting clients’ businesses
Worker availability
Supply chain disruptions
Owner(s)’ personal/
family obligations
80% of employer firms experienced financial challenges in the prior 12 months, an increase of 14 percentage points from the 2019 survey. 1 Approximately the second half of the prior year through the second half of the surveyed year. 2 Respondents could select multiple options. 3 Approximately the second half of 2019 through the second half of 2020.
SHARE OF FIRMS WITH FINANCIAL CHALLENGES, Prior 12 Months^1 (% of employer firms)
PERFORMANCE & CHALLENGES Financial Challenges, Prior 12 Months
TYPES OF FINANCIAL CHALLENGES, Prior 12 Months2,^3 (% of employer firms) N=9,
Paying operating expenses
Making payments on debt
Paying rent
Purchasing inventory or
supplies to fulfill contracts
Credit availability
Other financial challenge
No financial challenges 20%
2017 Survey
N=8,
2018 Survey
N=6,
2019 Survey
N=5,
2020 Survey
N=9,
1 Respondents could select multiple options. 2 Approximately the second half of 2019 through the second half of 2020. 3 Response option “other” not shown in chart. See Appendix for more detail. 4 Data on personal finances were drawn from questions in the optional end-of-survey module (completed by approximately 80% of respondents). This subset of respondents is re-weighted to be reflective of the overall small firm population. 62% of firms used personal funds to address their financial challenges.
ACTIONS TAKEN TO ADDRESS FINANCIAL CHALLENGES, Prior 12 Months1,2^ N=7,
(% of employer firms reporting financial challenges)
80% of firms reported that pandemic-related business challenges impacted the owners’ personal finances.
EFFECTS OF THE FIRMS’ FINANCIAL CHALLENGES ON THE N=6,
PRIMARY OWNERS’ PERSONAL FINANCES 1,3,4^ (% of employer firms)
Did not draw a salary or reduced salary
Concerns about personal credit score or loss
of personal assets due to late payments
Paid business expenses with personal funds
Borrowed funds from spouse/
other family or friends
Borrowed against home or retirement account
Worked a second job or extra hours outside
of this business
No challenges or impact on personal finances
No action
Other action
38%
Made a late
payment or
did not pay
50%
Took out
debt
52%
Obtained funds
through grants,
crowdfunding,
donations, etc.
55%
Cut staff, hours,
and/or downsized
operations
62%
Used personal
funds
PERFORMANCE & CHALLENGES Coping with Financial Challenges and Use of Personal Funds
1 The Paycheck Protection Program (PPP) is administered through the US Small Business Administration. 2 The shares of firms that sought and obtained PPP funding that are shown in this report are higher than estimates from other sources. Much of the variance is likely attributed to the exclusion of nonemployer firm responses from this report, as nonemployers are less likely to have sought and obtained PPP funding. SBCS findings for nonemployers will be released in a separate publication. 3 Note that as a share of all employer firms in the SBCS sample (PPP applicants and nonapplicants), 78% received at least some PPP funding. EMERGENCY FUNDING PPP Application Outcomes and Expected Loan Forgiveness 96% of employer firms that applied for PPP loans reported that they received at least some funding.
PPP FUNDING RECEIVED, AS A SHARE OF AMOUNT SOUGHT 1,2,3^ N=7,
(% of PPP applicants)
SHARE OF PPP RECIPIENTS THAT EXPECT LOAN FORGIVENESS^1 N=7,
(% of PPP applicants at least partially approved)
All
Most
Some
None
Full forgiveness
Partial forgiveness
Unsure
Do not expect forgiveness
1 Respondents could select multiple options; respondents may have submitted more than one application. 2 Respondents were provided a list of large banks (those with at least $10B in total deposits) operating in their state. 3 “Online lenders,” also called fintech lenders, are nonbanks that lend online. Examples include: Lending Club, OnDeck, CAN Capital, Paypal Working Capital, Kabbage, etc. 4 “Finance company” includes nonbank lenders such as mortgage companies, equipment dealers, insurance companies, auto finance companies, etc. 5 Community development financial institutions (CDFIs) are financial institutions that provide credit and financial services to underserved markets and populations. CDFIs are certified by the CDFI Fund at the US Department of the Treasury. EMERGENCY FUNDING PPP Applications and Outcomes Small banks were the most common source for PPP loans among employer firms, and the source from which applicants were most successful in obtaining all the PPP funding they sought.
PPP APPLICATIONS AND OUTCOMES, By Source
Share of PPP applicants
that applied for PPP funding
at source^1
N=7,
Share of PPP applicants that
had an existing relationship
with the lender at which they
applied, by source
Share of PPP applicants that
received all of the PPP funding
they sought, by source
Small bank 48% 83% 78%
Large bank^2 43% 95% 70%
Online lender^3 9%
Credit union 80% 63%
Finance company^4 28% 41%
CDFI^5 26% 44%
N=3,
N=3,
N=
N=
N=3,
N=3,
N=
N=
N=
N=
N=
N=
LOOKING AHEAD Performance Expectations, Next 12 Months More firms were expecting a revenue decrease than a revenue increase in the next 12 months. 1 The index is the share reporting expected growth minus the share reporting a reduction. Due to rounding, the 2020 employment index is not equal to the difference between the shares shown for firms expecting an increase and firms expecting a decrease. 2 Expected change in approximately the second half of the surveyed year through the second half of the following year. 3 Questions were asked separately, thus the number of observations may differ slightly between questions. 4 Next 12 months is approximately the second half of 2020 through the second half of 2021.
EMPLOYER FIRM PERFORMANCE EXPECTATIONS, 2020 Survey (% of employer firms)
REVENUE CHANGE, N=9,
Next 12 Months^4
CHANGE IN EMPLOYMENT, N=9,
Next 12 Months^4
Will
increase
Will not
change
Will
decrease
Will
increase 31%
Will not
change
Will
decrease
EMPLOYER FIRM EXPECTATIONS INDEX, Next 12 Months1,^2 (% of employer firms)
Revenue growth
expectations
Employment growth
expectations
2016 Survey
N^3 =9,765–9,
2017 Survey
N^3 =7,736–8,
2018 Survey
N^3 =6,450–6,
2019 Survey
N^3 =5,024–4,
2020 Survey
N^3 =9,412–9,
LOOKING AHEAD Expected Challenges Resulting From Pandemic, Next 12 Months 95% of firms expected to face one or more pandemic-related challenges in the next 12 months. 1 Respondents could select multiple options. 2 Next 12 months is approximately the second half of 2020 through the second half of 2021. 3 Respondents who identified more than one anticipated challenge were asked which challenge they expected would be most important. This chart includes these responses as well as responses for firms with only one anticipated challenge.
Weak demand for
products/services
Supply chain disruptions
Government-mandated
restrictions or closures
Credit availability
Labor shortages
Owner(s)′ or employees′
personal/family obligations
Other
No significant challenges
CHALLENGES FIRMS EXPECT TO FACE AS A RESULT OF THE PANDEMIC, Next 12 Months1,2^ N=9,
(% of employer firms)
Of those anticipating pandemic-related challenges, 37% of firms identified weak demand as the most important challenge they expect to face.
SINGLE MOST IMPORTANT CHALLENGE FIRMS EXPECT TO FACE, Next 12 Months2,3^ N=9,
(% of employer firms expecting one or more pandemic-related challenges)
37% Weak demand for products/services 26% Government-mandated restrictions or closures 13% Credit availability 1 2 3
LOOKING AHEAD Survival Expectations 30% of the firms that reported sales were below normal at the time of the survey expect it is unlikely the business will survive without government assistance until sales recover. 1 Percentages may not sum to 100 due to rounding. 2 Data on sales recovery and firm survival expectations were drawn from questions in the optional end-of-survey module (completed by approximately 80% of respondents). This subset of respondents is re-weighted to be reflective of the overall small firm population. 3 At time of survey, September through October 2020.
EXPECTED TIMING OF SALES’ RETURN TO “NORMAL” (I.E., 2019 LEVELS) 1,2,3^ (% of employer firms) N=7,
LIKELIHOOD FIRMS WILL SURVIVE WITHOUT ADDITIONAL GOVERNMENT N=6,
ASSISTANCE UNTIL SALES RETURN TO NORMAL 1,2^ (% of employer firms for which sales had not yet returned to normal)
Sales are currently
at or above normal
By end of 2020 First half of 2021 Second half of 2021 2022 or later
Very
likely
Somewhat
likely
Neither likely
nor unlikely
Somewhat
unlikely
Very
unlikely
LOOKING AHEAD Plans to Apply for More Emergency Assistance in the Future At the time of the survey, 64% of firms planned to apply for future government assistance if it was made available.
FIRMS’ PLANS TO APPLY FOR FUTURE GOVERNMENT-PROVIDED N=9,
EMERGENCY ASSISTANCE FUNDING IF IT WAS MADE AVAILABLE 1,2^ (% of employer firms)
1 Percentages may not sum to 100 due to rounding. 2 The survey was administered in September and October of 2020, after the close of 2020 PPP funding and prior to the announcement of new PPP funding. Therefore, respondents were asked about their firms’ intent to apply for hypothetical, undefined future government-provided funding. 3 Data on sales recovery and firm survival expectations were drawn from questions in the optional end-of-survey module (completed by approximately 80% of respondents). This subset of respondents is re-weighted to be reflective of the overall small firm population.
Would
apply
Unsure
Would not
apply
7% of firms that would not apply believe it is unlikely they will survive without further government assistance until sales return to normal. 39% of firms that would apply believe it is unlikely they will survive without further government assistance until sales return to normal.