Financial Ramifications on Small Business
For many years, the gourmet sandwich shop across the street from my home office window has always had a line out the door at lunchtime due to its incredibly delicious sandwiches, coffee, and cookies. Despite the myriad of other lunch options down the block in Harvard Square, it remains in high demand. But since March 2020, it has had to manage to stay open, limiting its hours, denying its regulars the ability to sit and sip coffee in their café seating, and serve only those folks who order ahead or stand outside on the sidewalk. I cannot imagine what this year has done to their business, but I see them sticking with it, and think that when restrictions are lifted they will see throngs of people returning to their seats.
Not every small business like this shop has been so lucky. Many closed within weeks or a few months of the pandemic’s start. Others limped along with the PPP loans and then have either closed or are about to close because they could not continue at the reduced rate of business. From the start of the pandemic, the sentiment has been that the virus has the least impact on those who are healthiest – and that applies to both people and businesses.
However, the Wall Street Journal recently had an article that said the Fed released a statement that about 200,000 more small businesses closed during the pandemic than normal, far fewer than many expected.
Now that we are beginning to talk about reopening and vaccinations are rolling out, people and businesses are feeling like there is hope for the future. According to a recent Big Village survey of small business owners, about twice as many small business owners felt that they would be in better financial standing 6 months from now than they are today and planned to hire more employees in that period.
Businesses are looking ahead to begin returning and growing, but many small business owners are being cautious about how they manage the business as they do. This is good news, since a vast majority pointed to the virus going away as having an impact on the success of their business – 56% thinking it will have a critical or have a great deal of impact on their success.
Where To Place Your Bets Post Pandemic
As companies that serve small businesses, many financial service providers are in a great position to help support these businesses as they emerge from the pandemic and grow. The tough question is, which ones are poised for rebound and which ones are about to buckle under back rent, other loans, and demand that is not fast enough to keep them afloat? Many of the signals of distress have been muted this past year by stimulus, forgiveness, forbearance, and PPP, so it is not as clear as in the past where to take on risk. A bank looking to extend credit to a small business needs to be able to make a guess as to which bucket their small business customers may fall into to be able to make the right bets.
If you have gotten to this part of this article and hoped to find the tell-tale sign making this distinction, I apologize, I don’t have it. What I do have is acknowledgement that this will be one of the most important signs that your business learns to identify this year.
Having said that, for every financial service (bank, insurance, payment system, benefits administration, etc.) there are key behaviors and attitudes that you can evaluate to point you in the right direction. Combining what you already know (current balances, payment history, transaction history, claims, etc.) with relevant attitudes, behaviors and profiling information about your customers can help point you in the right direction. For each company, these data points will have a unique solution to identifying the right small businesses to bet on and help build upon as the economy begins to open up.