Small businesses struggled even before coronavirus: Fed report

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Even before the coronavirus through the economy into a tailspin, many small businesses were struggling to cover operating expenses.

That was one takeaway from the Small Business Credit Survey from the Federal Reserve Banks. The study was completed in third and fourth quarters of 2019 but offers a glimpse of how some small companies could fare during the current pandemic. The outbreak has caused nonessential businesses to close while other industries have seen consumer demand plummet. That is creating a financial hardship for many companies.

About two-thirds of the small businesses that participated in the survey said they faced a financial challenge in the last 12 months. The most frequent issue was being able to cover operating expenses. Eighty-six percent of respondents said that if they lost revenue for two months they would have to find a way to cut expenses or supplement funding.

Some small businesses said they would use the owner’s personal funds to survive while others would take on more debt. Seventeen percent said they would have to shut down.

About three-quarters of firms said input costs had gone up during the year. Of those that said these expenses had gone up, 61% responded by raising their prices. Still, profit margins fell for 40% of the survey participants.

The need for credit among small businesses remained steady with 43% of participants applying for a new loan in 2019. That number remained unchanged from 2018. About half said they received the full amount of the loan they applied for. Participants said they preferred to work with banks, followed by online lenders. Just 9% said they had applied to a credit union for a loan.

There were some bright spots from the report. More than a third said they had hired more employees and 56% of respondents said that their firms had increased revenue in 2019.

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Small business Small business lending Coronavirus Commercial lending