Most small businesses kept paying their bills during the pandemic. Experts say that can only last so long.

small business owner
Ralph Mercier, owner of Mercier’s Salon, pauses from hanging up snowflakes in the window of his business in downtown Calais, Maine.

  • Government support has helped small businesses pay their bills during the pandemic, a report finds.
  • Aid programs including the PPP and lender forbearance, along with reduced payrolls, have kept businesses afloat.
  • But experts say that while stimulus aid is a start, relief needs to be more targeted in the future.
  • See more stories on Insider’s business page.

The coronavirus recession hit small businesses hard. However, with the help of small business lending programs and government funding, many businesses managed to continue making their payments, with credit in good standing.

A report released on Tuesday from the Urban Institute, a left-leaning think-tank, found that despite significant revenue losses for small businesses in the past year, government support, reduced payrolls, and lender forbearance have helped those businesses continue paying their bills. Using data from businesses in Chicago, Detroit, Houston, New Orleans, New York, San Francisco, Seattle, and Washington, DC, the report found that while debts owed by small businesses have increased slightly since 2020, most have been able to keep up to date on payments.

“Our new evidence shows that the pandemic’s effects have largely not – or at least not yet – translated into dramatically higher delinquencies or defaults among small businesses,” the report said.

Nationwide, past-due payments or debts owed by small businesses have increased from 17.7% in February 2020 to 18.3% in January 2021, and the report said that while some businesses in the eight cities were more affected than others, differences “in business delinquency from city to city outweigh any effects observed since the pandemic.”

How businesses have paid their bills

Womply data found that revenues for small businesses are down 38% from pre-pandemic levels, while JPMorgan Chase reported that revenues are only down 9% from pre-pandemic levels.

Brett Theodos, a senior fellow at the Urban Institute and researcher on the report, said that given the disparate numbers on the revenue data, there isn’t a definitive answer yet on how much revenues are really down, but “there is a revenue hit regardless of what that number is.”

Despite the losses, those businesses have continued to stay afloat with the help of government-provided aid.

The Urban Institute report found that the Paycheck Protection Program – which lawmakers are now pushing to extend past March 31 – has factored into small businesses maintaining a strong credit standing due to the aid provided since the start of the pandemic.

And in President Joe Biden’s $1.9 trillion stimulus plan signed into law on Thursday, $50 billion was set aside for small business aid, including $7.25 billion specifically for the PPP.

In addition, the report said that many businesses have shrunk their costs during the pandemic by cutting payrolls, and they have also benefitted from flexibility granted from creditors and landlords.

“The combined result of these three forces-PPP support, cost reductions, and forbearances-has been a significant growth of cash holding for small businesses, rising by more than 41 percent before tapering modestly after its peak in August 2020,” the report said. “On average, small businesses have also been able to maintain strong credit standing because of these same forces.”

Continued support through policy is needed

While cutting payrolls and making other accommodations have helped small businesses survive in the past year, the report said that doing so is painful for the businesses and will constrain their future growths.

“Small businesses’ abilities to maintain payments on average does not imply that all businesses and owners are doing well,” the report said.

$300 weekly unemployment benefits were extended through September under Biden’s stimulus, and the benefits, along with the additional PPP funds, will help people and businesses get by financially.

Theodos noted issues with the first round of the PPP, during which the businesses who truly needed the aid were not appropriately targeted, and he suggested that when looking toward future aid for small businesses, policies should ensure aid is being equitably distributed.

“Let’s find those businesses that really need to help,” Theodos said. “Let’s support entrepreneurial ecosystems where they’re not well developed, let’s help de-risk loans that really are high risk, let’s overcome the race equity gap that exists and business ownership in this country, and let’s be more intentional around our targeting.”

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Biden’s $1.9 trillion stimulus could drastically cut poverty, studies say

Joe Biden
President Joe Biden.

  • Biden’s $1.9 trillion stimulus passed the House again today, and is set to be signed into law this week.
  • The legislation could play an enormous role in reducing poverty rates, especially for children.
  • Two separate studies found it could reduce poverty rates by a third, but only over the next year.
  • See more stories on Insider’s business page.

President Joe Biden’s historic $1.9 trillion stimulus relief package just passed the House, and is set to be signed into law this week.

The bill will allocate billions towards Americans, providing relief for unemployed workers, parents, and millions more. Many taxpayers are set to receive $1,400 stimulus checks, and parents could receive up to $3,600 per child under the child tax credit.

One area where the stimulus will be acutely felt: poverty rates. Two different studies anticipate that the legislation will have a dramatic effect, projecting that millions of Americans will no longer be living in poverty in 2021. The bill, passed via reconciliation along party lines in both the House and Senate, includes measures that will expire in 2022, meaning that it’s an open question what happens to poverty rates at that point.

A study out of the Center on Poverty & Social Policy at Columbia University found that the package could nearly halve child poverty, and would more than halve the rate for Black and Hispanic children. Broadly, that study projects that the annual poverty rate would fall from 12.3% to 8.2% – meaning it would drop by a third.

Meanwhile, a study from the Urban Institute finds the plan would cut poverty by over a third. That study projects that the annual poverty rate would shrink from 13.7% to 8.7%, with 16 million fewer Americans living in poverty in 2021.

This will also impact some of those who have been hardest hit by the pandemic. Poverty rates will drop by half for those in households who experienced job losses during the pandemic, compared to a nearly one-third drop for households who did not lose jobs during the pandemic. As Insider’s Ben Winck previously reported, low-wage, minority workers were the hardest hit by pandemic unemployment.

The share of Americans in deep poverty – defined as those with resources that are less than half of the poverty threshold – would also drop by a third.

The legislation will help address some racial disparities. Historically, poverty rates have been higher for Black and Hispanic Americans. With the American Rescue Plan, it would fall 42% for Black Americans, 39% for Hispanic Americans and 34% for white Americans.

Those drops aren’t unexpected. Throughout America’s pandemic year, poverty has fallen with each new stimulus package and increased unemployment benefits, according to research from economists at University of Chicago, University of Notre Dame, and Zhejiang University.

In a statement on the bill’s passage, Biden highlighted how it will reduce child poverty, and added: “This legislation is about giving the backbone of this nation – the essential workers, the working people who built this country, the people who keep this country going – a fighting chance.”

There is that one catch, though: What happens to poverty rates after the stimulus money runs out?

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