5 reasons a small-biz bounceback may not overcome the full coronavirus impact

The immediate lockdown of the nation’s economy in response to attempts to flatten the coronavirus infection curve has had a widespread impact on the revenues of all businesses, particularly small ones that are more susceptible to economic disruptions.

The National Bureau of Economic Research, a nonprofit organization well-known for providing the start and end dates for recessions in the U.S., declared that the country entered into a recession in February, just as it was first starting to confront the coronavirus pandemic.

While the economy is in a recession, not all small businesses have been affected equally — and a few sectors have shown a recovery in sales. Despite this, many small business owners have missed payments on loans, credit cards and supplier bills.

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Using the first week of March as a baseline of small-business dollar sales and transaction volumes, the biggest drop came just a few weeks after President Trump declared a national emergency on March 13, and has steadily rebounded to be within 1% of pre-emergency sales levels and 6% of transaction levels.

According to data from CardFlight, a small-business payments acceptance provider, transaction counts of its small business customers were down by 50% for the week of March 23-29 when compared to the baseline week of March 2-8. In terms of dollar payment volumes, the bottom hit a few weeks later in April 6-12, falling by 29.3%

One noticeable shift in small-business sales during the coronavirus crisis is that while consumers have been making fewer purchases, the average transaction size has grown, as evidenced by a smaller decrease in payment volume compared to a larger decrease in transactions.

“The narrative on the economy led people to believe that there was a complete shutdown of businesses. But the reality was that it was not a complete shutdown,” said Derek Webster, founder and CEO of CardFlight.
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Not all small-business segments have fared equally during the coronavirus lockdown, with brick-and-mortar retailers and service businesses such as nail salons and barbershops having suffered the more than segments such as grocers or restaurant takeout and delivery.

Using small business data supplied by CardFlight, retailers saw a drop in transactions of over 50% for a three-week period starting March 23 and ending April 12, when compared to a baseline of transactions during the first week of March (2-8). Despite many businesses adding the e-commerce channel to their sales mix if they didn’t have it before, or emphasizing it if they already did, transactions have not yet rebounded to pre-emergency levels.

Retailers saw 84.8% of transactions and 94.7% of sales in the week of May 25-31, which included the Memorial Day holiday, as a percentage of similar data in the first week of March.

“The most surprising thing we are seeing is the tenacity and resilience of small businesses. While sales and transactions are still down for some segments, we have not seen permanent account closures of clients to our payment acceptance service exceed historical norms. It is our belief that the majority of businesses expect to re-open,” commented Webster.
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“Hospitality businesses, such as food trucks and restaurants, brick-and-mortar retailers as well as brick-and-mortar service businesses including chiropractors, barbers and dry cleaners have suffered the most,” said Lillian Roberts, founder and CEO, Xendoo, an online bookkeeping and accounting platform for small businesses. “It’s the smallest businesses that are at the greatest survival risk. Whereas larger small businesses with deep pockets and pandemic-proof businesses such as plumbers, electricians and landscapers are the best positioned to thrive.”

Based on data from J.D. Power’s COVID-19 Small Business Pulse Survey, the businesses with the fewest employees (before the crisis) have suffered some of the biggest revenue declines. About 40% of small businesses with one employee reported revenue declines of 75% or more due to the coronavirus lockdown, compared to 18% of small businesses with 26-100 employees, which reported suffering the same level of revenue declines.

Not surprisingly, many smaller businesses with few employees tend to have a higher concentration in the in-person service industries such as nail salons, physical therapy offices and barber shops that have been most impacted by the lockdowns and social distancing restrictions.
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The lockdown has created a revenue shortfall for small business owners, forcing many to skip payments on loans, credit cards and supplier invoices.

According to the U.S. Census Bureau Small Business Weekly Pulse Survey, almost one-quarter (23.6%) of owners missed a small business loan payment during the week of April 26-May 2. While the level of missed small business loan payments has come down over the past few weeks, almost 15% of owners still missed a loan payment in the most recent week of available data May 24-30.

“Some segments such as dry cleaners are getting crushed since America is staying remote,” said Lillian Roberts, founder and CEO, Xendoo, an online bookkeeping and accounting platform for small businesses. “If you’re not going to the office anymore, who needs to get their clothes dry cleaned? Opening at 50% of allowed occupancy is a death sentence to many businesses. For some it would be better to remain closed altogether if they can’t open at 100%. Is rent going to be 50% less? Landlords are not cutting monthly rent payments to their tenants, as banks are not cutting the landlords’ loan payments.”

Beyond loans, small businesses have also missed payments on items such as credit cards, supplier invoices and utility bills, albeit at a much lower level in recent weeks than at the peak of the crisis. The figure for skipped payments was at 11.5% during the week of April 26-May 2.
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As many cities and states are going through a slow, phased re-opening process, there continue to be significant restrictions on many small businesses. These range from limited to no indoor dining, limits on number of customers visiting a gym, new sanitization processes for barbershops and more. In other words, as the country begins to recover and reopen, owners are finding that life is not returning to business as usual.

The continuation of distressed conditions is a key concern among many small business owners, with almost half (48%) questioning whether they can continue to survive in the current environment. According to data from J.D. Power’s COVID-19 Small Business Pulse Survey, 6% of business owners don’t think they can survive another month if the current conditions continue, and another 10% expect that they can survive only one to two additional months.

“This has been a death sentence for malls and any small retailer that operates in them. Business owners are staring at the reality that we are going to be in this for a long period of time, and it’s a question of how long they can hang on,” said Roberts.