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Biz2Credit Analysis of COVID-19 Effects on Small Businesses Finds Revenues Dropped 52% and Payrolls Declined 54%

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New Study Examined Paycheck Protection Program Applicants’ Primary Data

Biz2Credit announced the results of its new Small Business Financial Health Survey, a study of primary data from 300 small business owners who received funding via the Paycheck Protection Program (PPP). The study found that year-over-year 2Q revenues of small business owners plummeted 52% from 2Q’19 to 2Q’20, while their payroll expenses dropped 54%.

The Small Business Financial Health Survey examined the effects of the PPP, a small business lending program administered by the Treasury Department and the SBA, and the direction of small business performance before, during, and after the COVID-19 pandemic.

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Key Findings:

  • Average quarterly revenue in 2Q’20 was $193,865, a 52% drop from $405,030 reported in 2Q’19.
  • Businesses reported a 54% drop in average payroll expenses from $137,126 in 2Q’19 to $62,599 in 2Q’20.
  • 60% of businesses surveyed were closed for some part of 2020 due to COVID-19, and these companies experienced a drop in revenue of 87% compared to 2019. Meanwhile, companies that were not closed saw an average decline of just 13%.
  • LLCs showed a revenue decline of 90%, a drop in payroll expenses of 51%, and a drop in the number of employees by 62%.
  • The average of number of employees among businesses surveyed dropped from 15 in 2Q’19 to just 8 in 2Q’20.
  • Only 20% of the businesses that had to close because of government mandates were offered a deferred payment option by their landlord or mortgage company.
  • Businesses will need to invest approximately $29,230 in personal protective equipment (PPE) and renovations to deal with COVID-19. That amounts to a 15-point reduction in gross margins on average.
  • The restaurant industry was hit particularly hard. For those that remained open, the average 2Q revenue dropped 72%, although the average check size rose slightly. Additionally, the average number of online or takeout orders was, surprisingly, down 38%.
  • Restaurants will shell out $52,106 on average for PPE. That’s approximately 78% more PPE costs due to COVID-19 than for businesses in other industries.
  • The average cost of recovery (PPE + renovations) is $21,553 for small businesses.

“Until now, there was been no attempt to quantify the effects of coronavirus among the businesses that applied for PPP money,” said Biz2Credit CEO Rohit Arora, CEO of Biz2Credit and one of the nation’s leading experts on small business lending. “These figures tell us just how dramatically their fortunes fell from 2019 to 2020.”

Struggles for small businesses continue. Only one in five companies were able to negotiate deferments or discounts on rents with their landlords. Thus, despite having zero revenues in some cases, businesses were expected to pay their rent in full.

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“A lot of small business owners were caught between a rock and a hard place; they had little money coming in, yet they had obligations to pay,” Arora added. “Everyone suffered. After all, many times the landlords themselves do not have deep pockets and rely on their rental income to survive.”

In the restaurant industry, some eateries were kept afloat only thanks to the donations of customers. Some benefitted from local communities who wanted to help keep struggling businesses alive while expressing gratitude to doctors, nurses, EMTs, and other frontline workers.

“It was a perk for a few weeks when these big orders would come in, as people in the community collected money specifically to provide meals for frontline workers at hospitals during the height of the pandemic,” said Greg Kowalczyk, owner of Fabio’s Bistro in Fanwood, New Jersey. The restaurant saw a surge of orders being sent to local hospitals during the height of the crisis in March and April.

“Donors were extremely generous and eager to help, but those types of orders have tailed off as the COVID-19 numbers improved in New Jersey,” Kowalczyk said. “The big catering orders for the healthcare workers went on longer than anticipated, but now have tailed off.”

Biz2Credit examined the financials of 300 small business owners who received funding through the Paycheck Protection Program (PPP). PPP lending, which commenced in April and was extended until August 8, has thus far distributed over $521 billion to nearly 5 million small and mid-sized businesses across the U.S.

The PPP was created to help small employers continue to keep paying their workers for an 8-week period during the COVID-19 pandemic. The loans are forgivable as long as employers keep their workers on payroll. Overhead expenses, including rent and utilities, are also included. This legislation was included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act and signed into law on March 27, 2020. Already extended beyond the original deadline of June 30, the PPP now closes for new applications at 11:59pm on August 8.

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On August 3, the CEOs of more than 100 companies – including Starbucks, Microsoft and Mastercard – called on Congress to continue federally guaranteed loans into 2021 and to provide flexibility in how that money is put to use.

“Small businesses are too critical to our country’s economic strength to let fail,” the letter read. “From retailers and restaurants to consulting firms and manufacturers, small business owners are facing a future of potential financial ruin that will make the nation’s current economic downturn last years longer than it must.”

“Funds must flow to all small business in need, particularly those run by people of color,” said former Starbucks chairman and CEO Howard Schultz, who spearheaded the effort.

Meanwhile, Congress continues to consider new legislation that could allow small business owners to take a second PPP loan, if they have fully used the funds received in the first one. Lawmakers have been considering this action (referred to as ‘PPP2’ by many in the industry) since it was announced publicly on July 27, although negotiations are continuing.

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