Fed Survey Exposes Perilous State of Small-Business Finances

(Bloomberg) -- Small businesses across America were running on slender finances well before the coronavirus struck, according to a survey by the Federal Reserve’s regional banks.

“Even in late 2019, a period characterized by positive economic growth and low unemployment, small businesses exhibited varying degrees of financial health,” the New York Fed said in a report Tuesday, drawing on evidence from the central bank’s 2019 Small Business Credit Survey. “Only one in five healthy firms -- and even fewer less-healthy firms -- had sufficient cash reserves to continue normal operations if they experienced a two-month revenue loss.”

Small businesses account for almost half of U.S. private-sector employees. Congress, to help shelter them from the blow of the pandemic, has authorized $349 billion in small business support under a $2.2 trillion virus rescue package it passed last month. But there have been glitches in the rollout of the aid, which promises to provide loans to small businesses to cover payroll, rent and utilities for up to eight weeks.

Such support is urgently needed, as the survey found that any dip in revenue would quickly affect operations.

“A majority of small businesses would be likely to reduce their workforce and operations, or delay payments. Many firms would rely on personal funds or debt to bridge the gap,” the Fed report said, adding that smaller firms, younger firms, and firms helmed by black or Latino owners were more likely to be classified as being at risk or distressed.

That’s already been happening, as Americans hunker down to prevent contagion, shuttering businesses across the country. Initial U.S. jobless claims reached nearly 10 million in the two weeks ended March 28. Unemployment rose to 4.4% last month, based on data covering early March, and some economists see it surging past 10% in April.

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