Urban Wire Despite the Pandemic’s Hit to Sales, Small Businesses Aren’t Experiencing Dramatically Higher Delinquencies. But Will That Trend Last?
Brett Theodos, Eric Hangen, Jorge González-Hermoso, Benny Docter, Christopher Davis
Display Date

Media Name: gettyimages-1230678695_crop.jpg

A year ago, the American economy was in a free fall. As large parts of the country went into lockdown and a national emergency was declared, small businesses began an arduous journey to survive the COVID-19 economic crisis. Falling sales forced many businesses to close and to lay off workers, leading to a spike in unemployment claims.

Our new evidence shows that the pandemic’s effects have largely not—or at least not yet—translated into dramatically higher delinquencies or defaults among small businesses. Government supports, reduced payrolls, and lender forbearance have helped many businesses keep up with their payments. But the question remains: without additional support, how long will that trend last?

Small businesses have experienced significant revenue drops

Evidence about the effects of the pandemic on small businesses is still emerging. JPMorgan Chase reports revenues are down 9 percent from pre-pandemic levels (with revenue drops reaching 40 percent in April 2020). Another source, Womply data analyzed by Opportunity Insights, reports revenues are down 38 percent from pre-pandemic levels (with revenue drops reaching 50 percent in April 2020).

These trends vary across business sector, geography, and business owner characteristics. Restaurants, accommodations, and personal services have been especially hard hit. And entrepreneurs of color have reported greater economic strains during the pandemic.

Small businesses remain in strong credit standing

Despite revenue drops and closings, we found that most small businesses have remained strong in their credit standing. We analyzed data from Dun & Bradstreet on 1 million businesses between September 2019 and January 2021 to examine trends before and after the pandemic started. We looked at the US overall and eight large cities: Chicago, Detroit, Houston, New Orleans, New York, San Francisco, Seattle, and Washington, DC.

We found that past-due payments or debts owed by small businesses as a share of each firm’s total trade activity has increased slightly nationwide, from 17.7 percent in February 2020 to 18.3 percent in January 2021. These data measure whether businesses are staying current on trade accounts and other debt obligations.



Businesses in some of the eight cities have been more affected than others, but overall, the trend remains similar, and businesses in most cities have been able to keep up with their payments. Differences in business delinquency from city to city outweigh any effects observed since the pandemic.

The biggest jump in past-due payments was in San Francisco, where they increased from 13.5 percent in February 2020 to 17.8 percent in January 2021. New York City also had delinquencies rise faster than the national average—from 25.1 percent in February 2020 to 27.6 percent in January 2021.

Businesses are keeping up with payments with help from the CARES Act, reduced payroll costs, and flexibility from creditors

The Paycheck Protection Program (PPP) and other stimulus programs for small businesses provided significant supports for small businesses. These supports were not targeted to firms on the basis of need (apart from this most recent round of PPP funding) and had high costs to the government per job saved, but they provided a large cash influx for businesses.

At the same time, many small businesses have shrunk their costs, most notably by cutting their payrolls. Employment levels are down by roughly 10 million jobs from their highest point before the pandemic. Many small businesses have also benefited from flexibility granted by creditors and landlords.

The combined result of these three forces—PPP support, cost reductions, and forbearances—has been a significant growth of cash holding for small businesses, rising by more than 41 percent before tapering modestly after its peak in August 2020. On average, small businesses have also been able to maintain strong credit standing because of these same forces, though disparities exist across racial and ethnic groups on both measures.

How policymakers can continue to support small businesses

It’s a good sign that small businesses are maintaining strong credit and increasing their cash on hand, but their ultimate standing will depend on future supports and the pace of the economic recovery. Shrinking payroll, reducing physical space, and other accommodations are painful for small businesses and may constrain their ability to grow. It’s also unclear what will happen when creditors cease to offer flexibility for businesses on repayment of their built-up amounts owed.  

Going forward, it’s important to continue monitoring the business credit situation. Small businesses’ abilities to maintain payments on average does not imply that all businesses and owners are doing well. As we have described, future supports could better target help to small businesses truly in need. This includes reaching entrepreneurs who are not already connected with banks or other networks, a group that disproportionately includes entrepreneurs of color. Policy supports could also do more to directly help workers who have lost their jobs by extending unemployment benefits.

Research Areas Economic mobility and inequality
Tags COVID-19 Small businesses
Policy Centers Metropolitan Housing and Communities Policy Center