A survey by LendingTree reveals up to 40% of small businesses in major US cities risk closing. between 24% and 40% of businesses in the nation’s 50 metropolitan areas risk closure if business doesn’t return to normal.
The analysis based on the U.S. Census Bureau’s Small Business Pulse Survey foreshadows a tough summer for small businesses. The survey covered the nation’s largest 50 metro areas based on the amount of cash they had in hand.
LendingTree Business Closure Survey
The sobering results reveal that small businesses don’t have enough cash on hand to cover one month’s worth of business expenses. This could lead to small businesses facing closure within a month’s time. Furthermore, about 11% of businesses surveyed say they don’t know how long their cash reserves would last them. By the end of April, nearly 6.8% of small businesses said they had no cash available. Recent data shows that the figure has fallen to 2.4%.
On the flip side, the percentage of small businesses with cash reserves lasting more than three months has risen from 16.7% to 27.4%.
Among these Hartford (Connecticut), St Louis and Pittsburg lead among cities most vulnerable to face closure.
Regarding the current three coronavirus hot spots Miami, Phoenix and Dallas businesses find themselves in different financial positions. In Miami, 36% of businesses say they have less than one month’s worth of cash. In Phoenix and Dallas, 29% and 27% of businesses, respectively, report the same.
How Businesses fare in the Months to Come
LendingTree’s study ranked the cities on the percentage of small businesses that had the least cash on hand. Those who had cash reserves of less than one month were ranked from the highest to lowest.
In Hartford, the most exposed major city, 40% of businesses have less than one month’s worth of cash on hand. A little more than 9% say their cash reserves would only last one to seven business days.
While in St. Louis 38% of small businesses say they have less than one month’s worth of cash. Almost 11% say they have one week’s worth of cash available or less. According to the survey, 2.6% of businesses say they have nothing left- more than the national average of 2.3%.
Similarly, around 37% of small businesses in Pittsburgh don’t have enough cash to last longer than one month. Close to 16% of businesses in this state say they think their cash reserves would last between one to two weeks. Other big cities seeing bleak forecasts include Philadelphia, Miami and Chicago.
Conversely, small businesses in Portland, Detroit and Austin had the most money on hand. only 24% of small businesses in Portland, Detroit and Austin, Texas have less than a month of cash reserves. These cities are faring better with more than 60% of businesses having enough cash lasting them beyond a month. less than a quarter of businesses in these states have cash lasting less than a month.
The survey comes at the heels of the announcement to extend the Paycheck Protection Program (PPP) to August 8th. PPP is the government’s emergency relief for small businesses in the wake of the COVID-19 outbreak. Through it, more than $520 billion was provided as loan assistance to nearly five million businesses nationwide. The bailout has more than $130 billion available for small businesses.
With PPP no personal guarantee is required and there is no need to put up collateral with the government backing 100% of the loan. The loan is subject to be fully forgiven if businesses spend 60%. This will occur if businesses uses the loan for payroll; paying interest for mortgage, rent; and utilities Small businesses who want to participate must first apply with a lender. A further requirement is that a business must have been in operation on February 15, 2020. businesses can only get one PPP loan.
The dire predicament businesses find themselves stem from them having to operate either with diminished capacity or total close down. As the pandemic unfolded lockdowns and social distances forced businesses to operate with diminished capacities for months.
As cities work towards normalizing, the speed in which others are reopening is being impeded by the resurgences of new cases. For businesses to really reach pe-outbreak levels they need to strike a balance between public safety and opening up. The onus remains for businesses to adopt solutions to reach optimum levels of capacity while preventing relapses. Placing smart and effective practices can go the distance to get on the road to recovery.
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