Small Business Report

The data from the Communities Speak: Small Business Survey clearly shows that those businesses that received financial support either through loans or grants were able to either keep their businesses from closing temporarily or permanently, and were less likely to layoff and furlough staff than businesses who did not. While not unexpected, this data supports the need for policy which will provide immediate financial assistance to small businesses.

The Communities Speak: Small Business Survey data suggests that a majority of small businesses have received between $25,000 and $500,000 in aid (through loans and direct assistance) and have been able to remain open, although still clearly experiencing revenue and staff losses. This would suggest that financial aid packages for small businesses should be targeted to ensure that losses during COVID-19 do not become permanent liabilities.

Many small businesses that have held on during the pandemic will need a combination of direct assistance, loan forgiveness and restructured debt.

Loans made to small businesses must be structured to minimize debt and payback burdens, which will require the development of a new type of credit scoring.

There is a need for aid to small businesses to be diversified to be truly effective.

For a majority of small businesses (approximately 70 percent), using PPP loans for any purpose other than payroll support has created new financial challenges and burdens.

All small businesses identified two major categories of costs:

1) payroll and related taxes

2) operational overhead and maintenance.

Financial support provided to businesses must either provide a necessary level of flexibility for businesses to direct the money where it is most needed, or the aid packages should be targeted for both overhead costs and payroll costs. That allows businesses to cover both operating expenses and maintain maximum available staff levels. Flexibility must be a key component in distributing aid.

A significant number of small businesses who participated in our survey did receive financial assistance. Stabilizing revenue is the number one priority of the largest majority of small businesses.

This means:

Assistance in accessing low-interest loans or direct grants, with minimum debt burdens and maximum flexibility in determining how to spend the revenue.

Rent relief and legal assistance in negotiating new leases must also be made available free or at low cost.

There is also no question that the availability of that first round of aid to many small businesses has enabled them to survive the severe impacts of the pandemic. However, there is currently concern regarding those businesses which indicated they had applied for loans early in the pandemic, but had not received them, as well as a larger problem for all small businesses that they continue to struggle to access and receive aid. Their problems accessing aid are both technological barriers, as well as difficulty navigating the financial system itself. In order for financial assistance for small businesses to be successful in alleviating burdens and staving off closures, aid must not only be made available and flexible, but must also be accessible with minimal financial or administrative burdens. This will require:

A complimentary set of policies or procedural shifts in order to ensure that barriers such as technological access to loan and grant application systems are removed

Terms, language and restrictions are clearly understood

The overall process does not become too lengthy, causing businesses to incur further financial hardship as they await outcomes.

For small businesses especially, equal and streamlined access to credit lenders is vital – it should not depend on existing relationships with banks (private lending, PPP) and the length of public lending application processes should be shortened and simplified as executed by government agencies i.e., SBA: EIDL, PPP. This is not simply a matter of providing tech support to small businesses, although some still have that need; the administration of assistance and loans is simply too burdensome and overly complex. We can and must simplify this process.

The Communities Speak: Small Business Survey makes clear that among the hardest hit during this pandemic were restaurants. Among small business types, restaurants have one of the least flexible business models, which made it difficult if not impossible to pivot during a crisis like the COVID-19 pandemic. A restaurant must remain in its brick-and-mortar location in order to maintain health code compliance, when total shutdown of indoor service occurs, or social distancing restrictions limit the use of indoor space, the number of patrons they can serve is severely limited and, subsequently, profit margins disappear. Some restaurants were able to introduce or expand their takeout or delivery service, but that for many was untenable. And finally, in order for restaurants to offer any form of service, they must keep sufficient staff to source and prepare food, conduct transactions, and provide customer service, all while maintaining a safe and sanitary environment in accordance with a new set of health regulations.

Taken all together, this points to a nexus of challenges which left restaurants among the most vulnerable of small businesses; a reality which is born out in the data of their having lost more revenue than any other type of small business. Restaurants also had to lay off and furlough employees at a higher rate than other types of small business. Both previous policy recommendations clearly apply to small business restaurants, but for restaurants, policy must go further and target their specific needs and higher risks through separate and tailored aid packages.

In considering the status, revenue, and employment data collected in the Communities Speak: Small Business Survey, it is clear that while no small business was free from some pandemic-related impact, some businesses experienced much less severe impacts than others. These businesses tend to have a business model which allows for more flexibility in when, where, and how they can offer service to customers while adhering to lockdown regulations and health and safety guidelines.

One such sector which was readily apparent in the data was the technology sector. These businesses saw far less loss of revenue than any other sector in the dataset, and experienced some of the absolute minimal (or none at all) furloughs and layoffs of employees from the start of the pandemic through lockdown. Specifically, 77 percent of technology small businesses indicated they were open remotely, while only 6 percent of other types of small businesses were able to operate remotely. These businesses are to be celebrated as true small business successes during the pandemic, and they should be looked at more closely to share their knowledge with the larger small business community both during this time of recovery, as well as in preparation for the next crisis.

These businesses also offer a contrast which reinforces the previous policy recommendation and offers a further one which expands on the same principle: support for businesses should be targeted first at those businesses which have the least ability to pivot their business models and will therefore incur the greatest revenue and employ costs (such as restaurants), followed by those which have some ability to modify or pivot their businesses or offerings (such as breweries and distilleries who turn to making sanitizer61), and then lastly to those businesses and sectors which have already shown their resiliency through the inherent nature of their sector, their customer needs, and the flexibility of their business model.

The City’s Economic Development Corporation and/or Department of Small Business Services must immediately initiate a cross-sector small business recovery planning process, involving the City’s extensive and effective network of business associations, Business Improvement Districts (BIDs), and chambers of commerce. It should first focus on addressing the immediate needs identified by small businesses:

Government agencies must coordinate their lending processes and develop an on-line portal that integrates all available information and resources from every level of government and philanthropy.

Full advantage should be taken of the Partnership for New York City’s Small Business Network which is already doing much of this work.

The Small Business Resource Network has a system set up with the borough Chambers of Commerce and the BIDs. They already reached over 13,000 small businesses and over 4,000 small businesses have substantially participated in their programs. Their network has a large staff that includes expert private sector volunteers who provide tech, marketing, legal and business development assistance.

Systematic data must be collected from government agencies (New York City Department of Finance, Consumer Affairs and New York State Department of Labor) and directly from the small business community through periodic surveys. In 2017, the New York City Council passed LL 209-2017 and LL 210-2017, which required the SBS to complete a survey and plan to address the needs of small businesses. The survey was done in 2018 and results were released in 2019. Unfortunately, the survey does not provide baseline data, as it was not a representative sample. The survey was also conducted during a period of economic growth and small business expansion, so there are very few questions that are relevant to the current challenges of the small businesses.

The Communities Speak project is prepared to work with the City and the small business community to provide the micro-level data that will ensure effective and relevant program design and knowledge about what’s both needed and working. The City must also be able to monitor policy implementation to determine what is working and to change programs as needs change. Survey data will also enable the City to work with the most resilient small businesses in each sector to document their successful business strategies and to share best practices.