COVID-19: Small Business Impacts — Lessons for the States (NGA, May 19, 2020)
Summary
Report titled COVID-19: SMALL BUSINESS IMPACTS, Lessons for the States, dated May 19, 2020. The executive summary states that, according to real-time data on small business activity, 45% of small businesses nationwide were closed during the peak lockdown period in mid-April, that impacts varied from Puerto Rico, where 75% of small firms closed, to Nebraska, where 26% were shuttered, and that 35% remained closed as of May 14. It states that the Paycheck Protection Program has disbursed more than $531 billion in credit but that state-level disparities reveal at least a $149 billion remaining shortfall. The report presents estimates of closures by industry and says three factors seem to explain state variation: virus severity, local regulations and industry mix.
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“COVID-19: Small Business Impacts — Lessons for the States (NGA, May 19, 2020).”
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COVID-19: SMALL BUSINESS IMPACTS
Lessons for the States
May 19, 2020
Report Highlights EXECUTIVE SUMMARY
As America reopens, small businesses remain at risk.
An estimated 45% of
American small businesses America’s small businesses have been ravaged by the COVID-19
pandemic. According to real-time data on small business activity, 45% of
closed temporarily due to
small businesses nationwide were closed during the peak lockdown
COVID-19.
period in mid-April. But impacts vary considerably across states and
territories – from hardest-hit Puerto Rico, where 75% of small firms
closed, to Nebraska, where 26% were shuttered.
Despite federal assistance,
small businesses across the Little by little, Americans are venturing out and heading back to work, as
country remain vulnerable, states begin to lift lockdown restrictions. However, 2.1 million small
with 35% still shuttered. businesses remain closed. Even in states that have lifted restrictions, a
sizable share of small businesses have not reopened.
The Paycheck Protection Program (PPP) has disbursed more than $531
The potential for billion in credit to vulnerable businesses across the country. However,
widespread, permanent state-level disparities in disbursement reveal at least a $149 billion
small business closures remaining shortfall. If the virus remains widespread, small businesses
poses a risk to state will likely continue to suffer falling revenues and financial insecurity.
budgets and economies. State governments should continue to monitor small business activity
for clues about additional necessary assistance and the potential impact
on state budgets.
COVID-19: SMALL BUSINESS IMPACTS
Introduction
Small businesses are particularly vulnerable to the economic impacts of COVID-19.
COVID-19 and efforts to contain the virus have had a the economic impacts of COVID-19. To mitigate the effects
devastating impact on American small businesses. In on small businesses and their employees, Congress
March 2020, all US states and territories introduced approved the Paycheck Protection Program (PPP) in late
containment measures, including stay-at-home orders March, setting aside $659 billion to help small businesses
and prohibitions on nonessential business operations. maintain payrolls and meet financial obligations.
Most of the private sector is feeling the effects of an
This report summarizes the economic impacts of COVID-
ongoing virus-induced recession – from forced closures
19 on the small business sector. It provides timely state-
and falling consumer demand to snarled supply chains,
by-state estimates for the number of small businesses
financial stress, and logistical challenges.
that have (temporarily) closed because of the virus and
But small businesses have so far borne the brunt of the the amount of credit necessary to meet immediate
impact. Firms with fewer than 500 employees tend to be demand under PPP lending terms. These estimates
concentrated in sectors characterized by a high degree of provide important context for understanding how small
human contact – including personal care services, businesses are likely to fare over the next few months.
accommodation & food services, and entertainment. They Small businesses employ 38% of the US workforce.1 If
tend to be more reliant on a limited set of suppliers and many small businesses are forced to close permanently,
customers, have less access to credit, and face greater the hit to state budgets – due to reduced property,
financial insecurity than large businesses. corporate, and income tax revenues and elevated
unemployment claims – will be significant.
Small businesses are therefore particularly vulnerable to
o
Nationwide Small Business Closures
Chart: Seven-day moving average of percent of businesses closed since March 7
100% In mid-March, as the extent of the
virus spread became apparent,
states and territories across the
country enacted containment
measures as workers and
75%
consumers opted to stay home.
From March 7 – April 4, the share
of small businesses nationwide
that were (temporarily) closed due
50% to COVID-19 rose from 2% to 41%.
By mid-April – the period of peak
closure – 45% of small businesses
were closed, amounting to 2.7
25% million small firms nationwide.
Although several US states have
since loosened restrictions on
activity, 35% of small businesses
remain closed as of May 14.
0%
Mar 7 Mar 23 Apr 8 Apr 24 May 10
Source: Homebase data, Keybridge calculations 1
COVID-19: SMALL BUSINESS IMPACTS
Nationwide Small Business Closures by Industry
Chart: Estimated percentage of small business closures by industry Estimated Number
of Closed Businesses
= % of closures at peak
Beauty & Personal Care 61,300
Leisure & Entertainment 54,600
Charities, Education &
102,800
Membership
Health Care & Fitness 268,400
Retail 231,500
Food & Drink 195,800
Total 2,100,000
Professional Services Incl.
Finance & Insurance 350,700
Other 504,100
Transportation 60,600
Home & Repair 237,300
0% 20% 40% 60% 80% 100%
Sources: Homebase, US Census Bureau, Keybridge calculations
The rate of small business closure varies by industry. Industry variation in small business closure helps explain
Sectors deemed less essential and those involving a state variation. Generally, three factors seem to explain
higher degree of in-person contact have seen a large why some states have seen more businesses close than
majority of businesses close. Small businesses in Beauty others: 1) virus severity, 2) local regulations, and 3)
& Personal Care – including barber shops, nail salons, industry mix.
tattoo parlors, and dry-cleaning services – have been the
1) Virus severity explains why New York, the hardest-hit
hardest hit, with a 91% of businesses shuttered in mid-
state in terms of case counts, saw 59% of its small
April. Despite relaxing restrictions on these businesses in
businesses close by mid-April – the third-highest
some states, 73% of small businesses in Beauty &
closure rate – compared to 45% of businesses
Personal Care remain closed.
nationwide.
Small businesses in the Transportation (including
2) Local regulations explain why small businesses in
trucking, taxi & limousine services, pipeline
Kansas (34%) have closed at a higher rate than in
transportation, and warehousing) and Home & Repair
Nebraska (26%) despite similar economies and similar
(including car washes, auto repair, and appliance repair)
per-capita case counts in mid-April. (However, KS’s
sectors have been among the least affected. Still, during
per-capita case counts are now lower than NE’s.)
the period of peak closure in mid-April, over one third of
businesses in those industries were effectively closed. 3) Industry mix explains why Hawaii (57%) and West
Virginia (52%) have seen more businesses close
Overall, small businesses across industries have been
despite having some of the lowest case counts. With a
severely affected by COVID-19. Although an estimated
high share of small businesses in tourism (HI) and
10% of small businesses nationwide have managed to
personal care services (WV), these states’ small
reopen since peak closure in mid-April, millions remain
businesses are more vulnerable to COVID-19.
shuttered across a variety of sectors and activities.
2
COVID-19: SMALL BUSINESS IMPACTS
Nationwide Small Business Closures by State & Territory at Peak
Estimated percentage of small business closures by state and territory at mid-April peak
60%
49%
55%
44%
48%
49%
48% DC 56%
47%
Territories
PR 75%
>50%
AS
GU
MP
0-20%
VI
57% No data
Sources: Homebase, Keybridge calculations
In May, many US states have relaxed restrictions on seen more than 20% of small businesses open in the last
mobility and business activity. Some businesses have month. Meanwhile, less than 10% of small firms have
therefore managed to reopen since mid-April. The degree reopened in Virginia, Massachusetts, California, and
of increase in activity also varies by state. Montana and Maryland, among others. Even in states that have lifted
North Dakota, where reopening began earlier and per- many restrictions, a sizable share of small firms remain
capita case counts are lower than in other states, have closed.
seen
Nationwide Small Business Closures by State & Territory
Estimated percentage of small business closures by state and territory, as of May 14
43%
36%
46%
32%
35%
38%
37% DC 52%
38%
Territories
PR 55%
>50%
AS
GU
MP
0-20%
VI
45% No data
Sources: Homebase, Keybridge calculations 3
COVID-19: SMALL BUSINESS IMPACTS
Sizing Up the Paycheck Protection Program (PPP)
PPP has gone a long way toward helping America’s small businesses and workers. But substantial needs remain.
On March 27, Congress created the Paycheck Protection An estimated 80% of small businesses nationwide have
Program (PPP) and the (much smaller) Economic Injury applied or will soon apply for a PPP loan.2 Based on this
Disaster Loan (EIDL) program to help small businesses figure, Keybridge estimates that at least 4.8 million small
retain employees and meet financial obligations. After the businesses are likely to apply for PPP, with total credit
initial $349 billion of PPP funding was depleted in just two demand expected to reach at least $660 billion. (This
weeks, a second round with an additional $310 billion figure does not include an additional estimated $24 billion
opened on April 27. Under PPP, firms with fewer than 500 for large hotel and restaurant chains that also qualify for
employees may apply for a low-interest loan equal to no PPP.) The table below displays estimates for the number
more than 10 weeks of the firm’s payroll costs. If the firm of small businesses in each state that would be expected
retains its employees and applies no less than 75% of the to apply for PPP and their expected credit demand, based
loan amount toward payroll, the loan may be forgiven. on national-level industry estimates and the rate of small
business closure by state.
Share of Estimated
Estimated Estimated PPP Loan Demand Demand Met
Number of Remaining
Businesses Number of Amount of Credit % of % of Credit Shortfall
State / Territory Closed at Peak Businesses ($ thousand) Businesses Credit ($ thousand)
Alabama 29,200 53,100 $ 6,945,400 110% 92% $ 556,900
Alaska 5,600 10,200 $ 1,302,900 94% 99% $ 12,800
Arizona 37,100 67,700 $ 8,301,700 93% 107% N/A
Arkansas 17,000 31,300 $ 3,306,900 125% 102% N/A
California 334,400 607,900 $ 91,203,400 81% 76% $ 21,987,500
Colorado 57,000 103,800 $ 12,115,600 91% 88% $ 1,455,300
Connecticut 33,500 60,600 $ 10,098,700 88% 68% $ 3,221,200
Delaware 9,200 16,700 $ 2,262,000 65% 66% $ 775,700
District of Columbia 9,500 17,000 $ 5,341,600 62% 43% $ 3,028,800
Florida 199,900 364,500 $ 34,878,600 85% 90% $ 3,604,900
Georgia 75,600 137,500 $ 16,497,700 92% 88% $ 1,915,900
Hawaii 13,900 24,600 $ 3,421,000 89% 74% $ 887,500
Idaho 12,200 22,500 $ 2,033,200 123% 129% N/A
Illinois 118,600 215,600 $ 31,164,800 80% 74% $ 8,218,600
Continued on next page
4
COVID-19: SMALL BUSINESS IMPACTS
Sizing Up the Paycheck Protection Program (PPP), Cont’d
Share of Estimated
Estimated Estimated PPP Loan Demand Demand Met
Number of Remaining
Business es Number of Amount of Credit % of % of Credit Shortfall
State / Territory Closed at Peak Businesses ($ thousand) Businesses Credit ($ thousand)
Indiana 46,200 84,000 $ 11,441,000 85% 84% $ 1,776,500
Iowa 23,000 42,200 $ 5,244,300 125% 99% N/A
Kansas 19,200 35,000 $ 4,466,600 135% 116% N/A
Kentucky 29,400 53,500 $ 6,552,100 83% 81% $ 1,243,200
Louisiana 36,300 66,000 $ 9,152,300 97% 81% $ 1,780,200
Maine 16,800 30,400 $ 3,145,100 83% 73% $ 855,500
Maryland 50,100 91,900 $ 14,766,000 73% 68% $ 4,671,300
Massachusetts 77,000 139,700 $ 25,216,200 74% 60% $ 10,176,900
Michigan 100,700 170,700 $ 24,696,000 65% 66% $ 8,492,500
Minnesota 51,800 94,100 $ 13,412,400 95% 85% $ 2,047,100
Mississippi 18,400 33,400 $ 3,532,000 121% 90% $ 342,300
Missouri 45,900 83,500 $ 10,263,300 100% 91% $ 909,200
Montana 11,400 20,800 $ 1,740,100 104% 102% N/A
Nebraska 11,100 20,300 $ 2,301,200 193% 152% N/A
Nevada 25,700 46,700 $ 5,751,500 75% 71% $ 1,640,400
New Hampshire 14,300 26,100 $ 3,811,300 84% 69% $ 1,192,400
New Jersey 93,200 169,300 $ 24,384,800 74% 72% $ 6,829,500
New Mexico 14,200 25,800 $ 2,976,500 77% 75% $ 733,100
New York 269,900 460,800 $ 66,481,200 59% 59% $ 27,346,100
North Carolina 71,800 130,700 $ 14,966,700 81% 85% $ 2,264,400
North Dakota 5,300 9,600 $ 1,288,500 192% 139% N/A
Ohio 81,700 148,400 $ 21,948,100 85% 87% $ 2,894,100
Oklahoma 22,200 40,500 $ 4,790,800 147% 116% N/A
Continued on next page
5
COVID-19: SMALL BUSINESS IMPACTS
Sizing Up the Paycheck Protection Program (PPP), Cont’d
Share of Estimated
Estimated Estimated PPP Loan Demand Demand Met
Number of Remaining
Businesses Number of Amount of Credit % of % of Credit Shortfall
State / Territory Closed at Peak Businesses ($ thousand) Businesses Credit ($ thousand)
Oregon 40,300 73,200 $ 8,536,600 74% 82% $ 1,513,300
Pennsylvania 116,700 211,900 $ 30,664,700 71% 70% $ 9,226,100
Rhode Island 10,300 18,600 $ 2,427,800 84% 79% $ 498,800
South Carolina 30,700 55,800 $ 6,231,100 100% 94% $ 404,300
South Dakota 5,800 10,600 $ 1,122,900 192% 149% N/A
Tennessee 37,200 67,900 $ 9,885,800 119% 93% $ 730,500
Texas 174,600 317,800 $ 46,765,600 107% 91% $ 4,421,700
Utah 16,600 30,400 $ 3,423,700 151% 160% N/A
Vermont 10,400 17,300 $ 1,928,800 65% 62% $ 723,800
Virginia 58,800 107,100 $ 15,883,100 89% 82% $ 2,824,100
Washington 65,400 118,900 $ 15,879,800 75% 78% $ 3,526,000
West Virginia 13,200 23,900 $ 2,674,300 66% 69% $ 837,200
Wisconsin 42,200 76,800 $ 10,997,800 101% 92% $ 894,800
Wyoming 5,200 9,500 $ 888,900 130% 118% N/A
Puerto Rico 32,800 43,500 $ 3,982,000 61% 43% $ 2,269,500
American Samoa* No data 400 $ 18,500 22% 29% $ 13,100
Guam* No data 2,800 $ 324,900 60% 60% $ 128,700
Northern Mariana Islands* No data 14,100 $ 76,700 2% 44% $ 43,000
U.S. Virgin Islands* No data 2,000 $ 213,100 57% 58% $ 89,400
United States 2,151,600 4,805,300 $ 660,112,000 89% 80% $ 149,077,300
*See Appendix for methodological notes regarding estimates for US territories
Sources: US Census Bureau, US Bureau of Economic Analysis, Small Business Administration, Homebase, Keybridge calculations
6
COVID-19: SMALL BUSINESS IMPACTS
Sizing Up the Paycheck Protection Program (PPP), Cont’d
Based on data for the second round of PPP through May There are several reasons for these disparities. Small
8, the Small Business Administration (SBA) has approved businesses in rural midwestern states tend to have
$531 billion in loans for over 4.2 million small businesses stronger preexisting relationships with community banks,
nationwide. The SBA has therefore approved loans for an allowing for faster, more successful application
estimated 89% of small firms expected to apply and processing.3 More worryingly, vulnerable small businesses
awarded 80% of the expected demand for PPP credit. in the worst-hit states may be reluctant to apply for a PPP
loan out of concern they will struggle to maintain payroll
On the surface, these figures indicate that the PPP has
in a difficult market environment and therefore fail to
succeeded in delivering credit to most small businesses in
qualify for loan forgiveness.
need. Despite widespread reporting on the program’s
shortcomings, the PPP’s second round has corrected The fact that a relatively high share of PPP credit was
many of the first round’s failures. For example, the extended to rural midwestern states does not necessarily
average loan size fell from $206,000 in Round 1 to mean those states are receiving “too much.” In fact, the
$73,000 in Round 2 – indicating that PPP funding is finally figures are limited primarily by the terms of the program,
reaching smaller businesses. which likely underestimate the true amount of money
necessary to make small businesses whole. That amount
However, the national total hides disparities between
is difficult to quantify. However, even after $531 billion
states, which point to a remaining $149 billion shortfall.
disbursed, a reported 52% of small businesses nationwide
While some states, including many rural midwestern
expect to be out of business within six months.4 This
states, have been approved for funds at rates higher than
figure along with other worrying anecdotes and survey
their eligible payroll and closure rates might suggest,
findings indicate that small businesses across the country
other states’ small businesses have received relatively
remain highly vulnerable and may require substantial
less. For example, New York – the worst-hit state in terms
additional federal and state-level assistance to avoid
of virus case counts – has seen only 59% of expected
shuttering for good.
credit demand fulfilled. Meanwhile, 92% of all small
businesses in Nebraska have been approved for a loan,
despite being the least-affected state in terms of business
closures.
Conclusion
Continued pain in the small business sector poses serious risks for states’ economies and budgets.
Even as states begin to reopen their economies, small If temporary layoffs in the small business sector become
businesses across America continue to struggle. Over permanent, states will witness persistently high
one-third of small businesses remain shuttered, and continuing unemployment claims. State revenues will also
those reopening face dramatic declines in revenue that fall significantly, as the disappearance of some small
may make them unprofitable for months to come. businesses and falling revenues for others lowers
property, corporate, and individual tax collections.
The possibility that millions of small businesses will have
to close permanently poses serious risks for state budgets As state governments consider the policies to enact at the
and state economies. Small businesses employ at least state level and advocate for at the federal level, they
38% of the U.S. workforce, and in some states and should consider the negative economic impacts of COVID-
territories (including Puerto Rico, Montana, Wyoming, and 19 on the small business sector and the implications for
Vermont) the share is significantly higher. their budgets, economies, and workforces.
7
APPENDIX
Methodology
This report draws primarily from two data sources: daily Adjustments were also made for state-level figures on
statistics on small business closures from Homebase, an closure rates, but due to data limitations, the adjustments
employee time-tracking service, and the 2017 Statistics of assume that Homebase data were similarly biased toward
US Businesses (SUSB) data tables from the US Census retail and accommodation & food services as for the total
Bureau, published in March 2020. Additional sources U.S. economy. State-level figures on business closure may
referenced and consulted include the Small Business therefore be somewhat less accurate for smaller states
Administration (SBA) Paycheck Protection Program (PPP) with less diversified economies than for larger states
reports, employment and payroll data from the US whose economies more closely resemble the total US
Bureau of Economic Analysis, and Current Employment economy. However, discrepancies are likely to be minor.
Statistics on state- and industry-level employment from
Estimates for the number of businesses closed were
the US Bureau of Labor Statistics.
calculated by multiplying the share of small businesses
Homebase statistics on small business closures are based closed by the total number of small businesses in each
on data for the number of hours logged by hourly state in 2017. Payroll estimates are derived from the 2017
workers at small business establishments over the SUSB tables but adjusted to include all payroll costs
reference period, in comparison to the same days of the beyond wages/salaries in 2019. Estimates for PPP loan
week during the period January 4-31, 2020. If no hourly demand by state were made by incorporating an 80%
workers at a small business recorded hours on a given national benchmark for businesses likely to apply for PPP
date, then the business was considered closed. The exact loans and adjusting the share by each state’s peak closure
meaning of business “closure” likely varies by industry and rate. By design, and due to data limitations, the estimates
business type, but Homebase data nonetheless offer a better illustrate the distribution of credit demand across
compelling benchmark for determining how COVID-19 states than the absolute demand for small business credit
has affected small business activity. Homebase data in each state, which is difficult to determine. Restrictions
corroborate those from other sources, including a US on the use of PPP funds mean that the estimates for PPP
Chamber of Commerce/Metlife April 3 survey reporting credit demand may severely underestimate true credit
that 54% of small businesses were likely to close demand nationally and in each state or territory.
temporarily by mid-April, and data on card transactions at
Because Homebase does not offer data on small business
small business establishments from Womply.
closure for the US territories beyond Puerto Rico,
Because Homebase users tend to be more concentrated estimates for PPP demand for those four U.S. territories
in retail and accommodation & food services, Keybridge assume credit demand is similar to the national average
adjusted the national-level figures on business closure (80%).
rates to better reflect the industry breakdown of small
businesses in the total US economy.
Notes
1 US Bureau of Labor Statistics, US Census Bureau (employment figure).
2 80% national benchmark is estimated from a National Federation of Independent Business (NFIB) survey released April 9 reporting 70% of
small business owners had attempted to apply for PPP, and an additional 10% were planning to apply in the next month. These figures are
in line with other small business surveys conducted in the last 6 weeks.
3 For more on this issue, see e.g., a May 4 WSJ report on community lenders and the PPP.
4 Society for Human Resource Management (SHRM) survey, “Navigating COVID-19: Impact of the Pandemic on Small Businesses” (May 6,
2020).
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