Biz2Credit: Small Business Revenues Slashed in Half in Q2/20

According to Biz2Credit’s Small Business Financial Health Survey, year-over-year Q2/20 revenues of small business owners plummeted 52% from Q2/19 while payroll expenses dropped 54%.

The Small Business Financial Health Survey examined the effects of the Paycheck Protection Program, a small business lending program administered by the Treasury Department and the Small Business Administration, and the direction of small business performance before, during and after the COVID-19 pandemic.The study used primary data from 300 small business owners who received funding via the PPP. 

Key Study Findings:

  • Average quarterly revenue in Q2/20 was $193,865, a 52% drop from $405,030 reported in Q2/19.
  • Businesses reported a 54% drop in average payroll expenses from $137,126 in Q2/19 to $62,599 in Q2/20.
  • 60% of businesses surveyed were closed for some part of 2020 due to COVID-19 and these companies experienced a drop in revenue of 87% compared with 2019. Meanwhile, companies that were not closed experienced an average decline of just 13%.
  • LLCs showed a revenue decline of 90%, a drop in payroll expenses of 51% and a drop in the number of employees of 62%.
  • The average number of employees among businesses surveyed dropped from 15 in Q2/19 to eight in Q2/20.
  • 20% of the businesses that had to close because of government mandates were offered a deferred payment option by their landlord or mortgage company.
  • Businesses will need to invest approximately $29,230 in personal protective equipment (PPE) and renovations to deal with COVID-19. That amounts to a 15-point reduction in gross margins on average.
  • The restaurant industry was hit particularly hard. For those that remained open, the average Q2/20 revenue dropped 72%, although the average check size rose slightly. Additionally, the average number of online or takeout orders was, surprisingly, down 38%.
  • Restaurants will shell out $52,106 on average for PPE. That’s approximately 78% more PPE costs due to COVID-19 than for businesses in other industries.
  • The average cost of recovery (PPE plus renovations) is $21,553 for small businesses.

“Until now, there [has] been no attempt to quantify the effects of coronavirus among the businesses that applied for PPP money,” Rohit Arora, CEO of Biz2Credit, said. “These figures tell us just how dramatically their fortunes fell from 2019 to 2020.”

Only one in five companies were able to negotiate deferments or discounts on rents with their landlords. Thus, despite having zero revenues in some cases, businesses were expected to pay their rent in full.

“A lot of small business owners were caught between a rock and a hard place; they had little money coming in, yet they had obligations to pay,” Arora said. “Everyone suffered. After all, many times the landlords themselves do not have deep pockets and rely on their rental income to survive.”

In the restaurant industry, some eateries were kept afloat only thanks to the donations of customers. Some benefitted from local communities that wanted to help keep struggling businesses alive while expressing gratitude to doctors, nurses, EMTs and other frontline workers.

“It was a perk for a few weeks when these big orders would come in, as people in the community collected money specifically to provide meals for frontline workers at hospitals during the height of the pandemic,” Greg Kowalczyk, owner of Fabio’s Bistro in Fanwood, NJ, said. “The restaurant saw a surge of orders being sent to local hospitals during the height of the crisis in March and April. Donors were extremely generous and eager to help, but those types of orders have tailed off as the COVID-19 numbers improved in New Jersey. The big catering orders for the healthcare workers went on longer than anticipated but now have tailed off.”

Biz2Credit examined the financials of 300 small business owners who received funding through the PPP. PPP lending, which commenced in April and was extended until Aug. 8, has thus far distributed more than $521 billion to nearly 5 million small and mid-sized businesses across the U.S.

The PPP was created to help small employers continue to keep paying their workers for an eight-week period during the COVID-19 pandemic. The loans are forgivable as long as employers keep their workers on payroll. Overhead expenses, including rent and utilities, are also included. This legislation was included in the Coronavirus Aid, Relief and Economic Security (CARES) Act and signed into law on March 27, 2020. Already extended beyond the original deadline of June 30, the PPP now closes for new applications on Aug. 8.

On Aug. 3, the CEOs of more than 100 companies — including Starbucks, Microsoft and Mastercard — called on Congress to continue federally guaranteed loans into 2021 and to provide flexibility in how that money is put to use.

“Small businesses are too critical to our country’s economic strength to let fail,” a letter from the companies read. “From retailers and restaurants to consulting firms and manufacturers, small business owners are facing a future of potential financial ruin that will make the nation’s current economic downturn last years longer than it must.”

“Funds must flow to all small [businesses] in need, particularly those run by people of color,” Howard Schultz, former chairman and CEO of Starbucks, said. 

Meanwhile, Congress continues to consider new legislation that could allow small business owners to take a second PPP loan, if they have fully used the funds received in the first one. Lawmakers have been considering this action (referred to as “PPP2” by many in the industry) since it was announced publicly on July 27, although negotiations are continuing.

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