Pandemic Money For Small Businesses

Pandemic Money For Small Businesses – The COVID-19 pandemic has affected every aspect of daily life, from work to entertainment. Even before the national emergency was declared on March 13, 2020, Americans began restricting their movement in an effort to stop the spread of the virus. In the weeks that followed, many states issued stay-at-home orders and closed non-essential businesses. Consumers have reduced their spending (Farrell, Greig, et al. 2020a) and shifted some of it to the Internet (Farrell, Wheat, et al. 2020).

It was an extraordinary setback for many small businesses and their owners. A typical small business maintains cash reserves to cover approximately two weeks of spillover in the event of a total revenue disruption (Farrell, Wheat, and Grandet 2019). Some small businesses were able to switch to alternative channels such as online sales, and many were able to cut costs to offset the loss of revenue. Others were temporarily closed.

Pandemic Money For Small Businesses

This report provides a first-hand look at the impact of COVID-19 and the economic downturn on America’s small businesses. Using an anonymized sample of approximately 1.3 million small firms nationwide, we examine small business changes in cash balances, revenues, and expenses through April 2020. This sample is based on anonymous transactions in deposit accounts.

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Cash balances, income and expenses together provide a summary of a small business’s financial health. A balance sheet provides the liquidity companies need, especially when faced with an adverse shock. Income and expenses indicate the amount of business activity, which can be reflected in the cash balance. However, a cash balance is not just the net difference between income and expenses: business owners can also transfer personal assets or obtain other financing to replenish their balance.

We examined these measures of financial health for all firms in our sample, as well as for metro area, industry, and host country. While all small business sectors have been negatively impacted by COVID-19, we found that the severity of the impact varies widely. Specifically, we found:

And provide additional insight. Specifically, we provide estimates of the impact of national emergencies on small business financial outcomes. It’s no surprise that small businesses are struggling, but this data validates the magnitude and variability of the impacts and informs policymakers of the metro areas, industries and population groups most affected. Notifies. For these small businesses, recovery may be more difficult than ever.

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One finding: Average small business cash balances fell 12.7 percent after the start of COVID-19, but rebounded by the end of April.

The average small business suffered a significant loss of cash liquidity of 12.7 percent due to the sharp drop in revenue at the onset of the COVID-19 pandemic, which was partially offset by subsequent expenses.

The line chart provides a daily view of the 52-week changes in the average daily cash balance. When the national emergency was declared, the balance was 5.6 percent lower than a year earlier. As of April 7, they were down 12.7 percent.

Figure 1 presents a daily view of the 52-week changes in average daily cash balances for the firms in our sample. Notably, the cash balance is hovering around a 4 percent annual decline in the first few weeks of 2020. When the national emergency was declared, balances were already 5.6 percent lower than a year earlier, and by April 7 they had fallen to 12.7 percent. In comparison, residuals decreased by about 7.5% before rebounding after Hurricanes Harvey and Irma in Houston and Miami (Farrell and Wheat 2018).

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CARES Act stimulus payments could help recover balances starting in mid-April. Although these payments are made to eligible individuals rather than firms, the majority of small businesses in our sample are non-employer entities. Entities, such as sole proprietorships, report net income on their owners’ tax returns. If business direct deposit information is used on these tax returns, the stimulus payments will be deposited into business checking accounts.

Figure 2: Small business income initially fell short of expenses, but by the end of April, expenses fell short of income.

The line graph provides a daily view of the 52-week changes in income and expenses. After the declaration of a national emergency on March 13, small business income dropped significantly.

. Expenditure also decreased but not to the extent of income. However, by the end of April, the balance had somewhat recovered, with expenses falling more than income.

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Changes in cash balances can reflect not only changes in income and expenses, but also net financial inflows such as transfers. Reviewing income and expenses gives a complete view of the financial health of a small business. Figure 2 shows that small business income dropped significantly after the declaration of a national emergency on March 13. At the end of March, the average small business generated nearly 50 percent less revenue than it did at the same time last year. Expenditure also declined during this period, but not as much as income. At the end of April, the balance was somewhat restored, with expenses falling more than income. Companies may be able to adjust their costs more in later weeks than before.

For the average small business, the decline in revenue was reflected beginning in mid-March and then offset by a corresponding reduction in expenses, reducing the impact on cash balances. At the end of April, both income and expenditure were materially lower than last year.

Finding two: Small business cash balances fell in every city, with Atlanta’s balance falling the most by 21 percent.

While local governments varied in the timing and scope of nonpharmaceutical interventions (NPIs), the general pattern of balance, revenue, and spending reductions and recoveries was surprisingly similar across metro areas. However, the magnitude of the effect varied significantly across cities. Figure 3 presents the trajectory of equity growth for the 16 metro areas in which median equity fell materially below the median growth we observed in our sample, 5 in which equity growth substantially increased. was quiet and growing until late April, and the balance growth is ours. observed six. The entire sample.

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Line charts showing balanced growth rates for our sixteen metro areas. Average balances fell the most in Atlanta, but rose the most in Seattle and Indianapolis.

Line charts showing balanced growth rates for our sixteen metro areas. Average balances fell the most in Atlanta, but rose the most in Seattle and Indianapolis.

Line charts showing balanced growth rates for our sixteen metro areas. Average balances fell the most in Atlanta, but rose the most in Seattle and Indianapolis.

The top panel of Figure 3 shows the metro areas where the decline in cash balances was more severe than for the sample as a whole. Several of these metro areas are popular tourist destinations, including Las Vegas, New York and Orlando. Small businesses in Atlanta, whose balances were already down 10 percent from the year before the national emergency declaration, saw the biggest drop. The bottom panel shows five metro areas whose cash balances did not decline as much as the national sample. Despite the initial cluster of COVID-19 cases in the region, small businesses in Seattle fared relatively well.

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The line graph shows the income and expenses of the three cities of Atlanta, Dallas and Indianapolis compared to the same time last year. Atlanta had the largest changes in balance, Indianapolis’ change was more moderate, and Dallas was similar to the statewide experiment. Both revenues and expenditures fell dramatically in March for all three cities, and both were materially lower by the end of April, despite some recovery.

The income and expenses of small businesses in each city exhibit similar patterns. Figure 3 shows the income and expenses of the three cities compared to the same period last year, with changes in cash balances for one of the three groups. Atlanta saw the largest balance changes, followed by Indianapolis. More neutral. In Dallas, the decline in cash balances was similar to that of small businesses across the country. In each of these cities, both revenues and expenditures fell dramatically in March, with relatively larger declines in revenues than expenditures, resulting in lower balances. Both revenues and expenditures were materially lower at the end of April than a year ago, although there was some momentum in late March and mid-April. A sharp decline in spending relative to income in April could cause small businesses to pick up their cash balances again.

Cities have seen different COVID-19 burdens as well as different stay-at-home policies, but every city in our sample has shown consistent declines in small business income and spending, with differences in the size of the decline. Although the cash balance recovered somewhat in April, both income and expenditure had not recovered by the end of April.

A third finding: Small business cash balances and income declined with wide variation in the intensity of industries; Restaurants and personal services were particularly hard hit.

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