ProductPayPalResearch and Insights
January 19, 2021 | Jim Magats, SVP Omni Payments
It’s been one year since the world was first impacted by COVID-19. Stay-at-home orders and non-essential business closures have resulted in a recession and disproportionately impacted small businesses (SMBs), which account for 70% of employment globally. As the world moves towards recovery, we must focus on supporting SMBs. The first step is understanding the challenges they face.
As a partner to more than 28 million SMBs, PayPal collaborated with Morning Consult to launch the PayPal-Morning Consult Small Business Confidence Index.[1] This quarterly index measures the sentiment of SMBs in the U.S. and surveys their challenges and needs so we can understand how to work more effectively across the public and private sectors to jumpstart recovery efforts.
The inaugural survey revealed five key findings:
- Most SMBs Are Optimistic About Long Term Economic Recovery
- While 42% of SMBs believe the economic conditions will improve this year, more (nearly 60%) believe the economic conditions will improve over the next three years.
- Conversely, nearly 30% of SMBs believe the economic conditions will decline over the next year, and 27% believe the economy will continue to worsen and ultimately make it too hard to keep running their business.
- Finding Customers, Access to Capital, and Competing with Large Enterprises are Key Challenges
- The top challenges for SMBs are: 1) finding customers 2) having enough money to keep their business running and 3) competing with established companies.
- The pandemic resulted in one of the largest wealth transfers from SMBs to large enterprises, as commerce consolidates around the largest players. Without access to digital tools to reach prospects and customers, or financing to maintain operations, many SMBs may be forced to close.
- A recent study by PayPal found that digital small businesses that use PayPal saw 25% YoY growth in Q2 2020, compared to a publicly reported 9% drop in revenue for overall SMBs and -3.6% growth in overall U.S. retail in the same quarter. This points to the increasing importance of digitization.
- 60% of SMBs Have Only Enough Cash to Operate for four Months if Revenue Dried Up
- 60% of SMBs have $25,000 or less cash on hand and 41% have less than $10,000.
- These businesses would only be able to maintain operations for four months if their revenue dried up or they didn’t get immediate access to capital.
- Underrepresented Business Owners Disproportionately See Access to Capital as a Challenge
- Respondents from underrepresented communities were 2x as likely to list access to capital as a key challenge. The recently passed government stimulus and relief packages offers an opportunity to reach SMBs in communities that need them the most.
- One way to ensure capital gets into the hands of underrepresented business owners is through public and private sector partnership. For example, PayPal-facilitated Paycheck Protection Program (PPP) loans last year disproportionately went to communities that are traditionally underserved, including underrepresented business owners.
- SMBs Want Grants, Tax Cuts, Favorable Loans and a Delay of Tax Repayments
- Grants (62% of respondents), tax cuts (46% of respondents), loans at reduced interest rates (45% of respondents) and delays of tax payments (45% of respondents) are the top forms of government support SMBs want.
- The responses show that the new PPP loans could not be coming at a better time.
- Help with online payments (23%) and connectivity (19%) were also seen as important for recovery efforts.
These findings point to three areas where, through public and private sector cooperation, we can help fuel SMB relief efforts:
- Provide Access to Capital and Other Forms of Financial Relief
- Financial relief in the form of grants and forgivable loans can help SMBs get back on track, continue operating and maintain payroll, even as the pandemic and recession may negatively impact their revenues.
- Research released by PayPal last October found that the first round of PPP loans helped to reverse the downward revenue trend for SMBs and eased cash flow challenges.
- Incentivize SMBs to Digitize
- The pandemic has sped up the shift toward online commerce and last year, US ecommerce sales grew more than 30 percent YOY. As a result, businesses that have digitized are faring better than their non-digital counterparts.
- By enabling tax cuts for SMBs to make necessary digital infrastructure investments, we can incentivize digitization and help these businesses stay open and become resilient.
- Democratize Access to Digital Payment and Commerce Solutions
- Collaborative efforts between the private and public sectors to help democratize access to digital tools can help SMBs get access to new customers, sell across borders, and continue to operate even when their physical stores may be closed.
As we begin 2021, there are signs of hope. Vaccines are now being distributed and Congress passed a new $900 billion Coronavirus relief bill, which authorized capital to SMBs through a renewed PPP. These efforts can begin to rebuild and restore the small business sector – the foundation of the global economy, the backbone of local communities and the engines of innovation, opportunity and diversity.
You can view the full findings of the inaugural PayPal-Morning Consult Small Business Index here.
1Data for the inaugural survey was fielded in November 2020. To accurately reflect the voices of diverse small businesses across America, the survey sample of 500 small businesses was weighted according to the US Census distribution of SMBs across gender, ethnicity, and size of business.