October 29, 2020 | Jim Magats, SVP Omni Payments
The global coronavirus pandemic has led to an unprecedented public health crisis that has also devastated economies across the globe. Global shutdowns and stay-at-home orders negatively impacted the sales and operations of many SMBs, particularly brick-and-mortar businesses that rely on in-person sales. As a result, unemployment levels rose and consumer spending declined. In less than a year, the pandemic has resulted in permanent closures of tens of thousands of SMBs and left more than 25 million Americans unemployed. But there is hope.
A study released by PayPal today found that SMBs in the U.S. that incorporated digital tools have been better able to navigate and weather the pandemic and in many instances, even grow. In addition, the study found that partnership between the public and private sectors, specifically between the U.S. Small Business Administration and PayPal in the form of the Paycheck Protection Program (PPP), successfully provided funding access to SMBs that have traditionally been underserved, and enabled businesses that received the financing to help reverse a downward revenue trend.
This study is based on analysis of transaction datasets of SMBs in the U.S. using PayPal, which we refer to as “digital SMBs”. The research study found two promising trends:
- Many SMBs leveraging digital commerce platforms and tools are actually seeing growth.
- Digital small businesses saw 25% year-over-year (YoY) growth in Q2 of 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.
- Although the pandemic affected different states to different degrees and at different times, digital small businesses in most states recorded growth in online sales, including states that were hardest hit early on during the pandemic. For instance, digital SMBs in New York and California saw 28% and 23% YoY growth respectively in Q2 2020.
- The ability for digital SMBs to reach customers outside of their own state borders has long been a source of growth and resilience associated with e-commerce, but the diversity of digital SMBs’ customer base has become particularly important during the pandemic. Seventy-five percent of digital small business sales were outside the SMBs’ home state in Q2 of 2020.
This is all very promising news. Today, although only 46% of small businesses in the U.S. have an online presence, more than 71% of small businesses have reported boosting their digital capabilities since the pandemic began. A May 2020 survey also found that 51% of businesses reported increasing online interactions with their clients. Seventy percent of small business respondents in an August survey said they are ready to invest in new technology to expand digital payments, while 73% said digital payments are the “new normal.”
- SMB recipients of PayPal-facilitated PPP loans, in partnership with the U.S. Small Business Administration, saw growth after capital injection.
An analysis of lending data and transaction data shows that PayPal’s facilitation of loans under the PPP* helped provide much needed capital for business continuity for small businesses and was over-indexed to underserved communities. Small business recipients of PPP loans through PayPal saw a reversal in downward revenue trends and saw growth after capital injection. The study found that:
- Digital SMBs that received PPP loans in April recorded -15% YoY revenue growth in the month before the loan and recorded an average of 14% YoY growth in the three months after the loan.
- A comparison of transaction data of overall PayPal SMBs and PayPal SMBs that received a PPP loan shows that the group that received a PPP loan recorded 177% as much total payment volume as did those without a PPP loan, on average, in April to August of 2020.
- PPP loans provided through PayPal were over-indexed in the majority of the top 30 counties that have the highest density of Black business activity, contrary to overall PPP lending.
- Also, for PPP loans that were below $150,000, 54% of PPP loans facilitated through PayPal were disbursed to areas where minorities made up more than 25% of the population, while only 39% of overall PPP loans were disbursed to the same zip codes.
- PPP loans facilitated through PayPal went towards the smallest of businesses. The average loan size was $28,000, and 75% of the loan portfolio were loans under $25,000.
These findings point to the importance of digitization and access to capital for SMBs, the foundation of our economy. While it is unclear when the pandemic will end, it is clear that digitization and online commerce offer a path to recovery and growth for SMBs. In addition, private sector innovation combined with public sector policy will be key to enabling small business survival, recovery, and longer-term resiliency.
You can review the full study here.
*PayPal acts as a service provider in connection with PPP loans originated by WebBank. The lender for the Paycheck Protection Program Loan through PayPal is WebBank, Member FDIC