SCOTCH PLAINS/FANWOOD, NJ -- Year-over-year 2Q'20 revenues of small business owners plummeted 52% while their payroll expenses dropped 54%, according the new Small Business Financial Health Survey, conducted by online lending platform Biz2Credit.
The study examined data from 300 small business owners who received funding via the Paycheck Protection Program (PPP), small business lending initiative administered by the Treasury Department and the SBA to help businesses survive the COVID-19 pandemic.
- Average quarterly revenue in 2Q’20 was $193,865, a 52% drop from $405,030 reported in 2Q’19.
- Businesses reported a 54% drop in average payroll expenses from $137,126 in 2Q'19 to $62,599 in 2Q’20.
- 60% of businesses surveyed were closed for some part of 2020 due to COVID-19, and these companies experienced a drop in revenue of 87% compared to 2019. Meanwhile, companies that did not close saw an average decline of just 13%.
- LLC revenue declined 90%, while payroll expenses fell 51%, and their number of employees dropped by 62%.
- Only 20% of the businesses that had to close because of government mandates were offered a deferred payment option by their landlord or mortgage company.
- The restaurant industry was hit particularly hard. For those that remained open, the average 2Q revenue dropped 72%, although the average check size rose slightly. Additionally, the average number of online or takeout orders was, surprisingly, down 38%.
- Restaurants will spend $52,106 on average for PPE -- about 78% higher than businesses in other industries will spend.
“Until now, there has been no attempt to quantify the effects of coronavirus among the businesses that applied for PPP money,” said Rohit Arora, CEO of Biz2Credit and one of the nation’s leading experts on small business lending. “These figures tell us just how dramatically their fortunes fell from 2019 to 2020.”
Struggles for small businesses continue. Only one in five companies were able to negotiate deferments or discounts on rents with their landlords. Thus, despite having zero revenues in some cases, businesses were expected to pay their rent in full.
In the restaurant industry, some eateries were kept afloat thanks to the donations of customers. Some benefited from local communities who wanted to keep struggling businesses alive while expressing gratitude to doctors, nurses, EMTs, and other frontline workers.
"We were down by 90% for the first two months. Every little bit was a help," said Sean Flannery, owner of Sheelen's Crossing in Fanwood. "Now, we are not getting charitable donations. The outside dining picked up, but its success pertains to weather. We've had rain and heat waves. The real concern is the winter is coming."
“Donors were extremely generous and eager to help, but those types of orders have tailed off as the COVID-19 numbers improved in New Jersey,” said Greg Kowalczyk, owner of Fabio’s Bistro in Fanwood. “The big catering orders for the healthcare workers went on longer than anticipated, but now have tailed off.”
"At Darby, the donated meals were a help for us when we were only doing pick up and delivery. Once outdoor dining happened, we started moving forward again. We are sports-driven, now that European soccer is back, people are coming in off hours and in the afternoon to watch it on our outside porch," he said. "With Houdini, we hardly skipped a beat. Out product travels well, so our regular customers who would come in on Friday night simply ordered pizza to go or delivery."
Both Mortarulo and Flannery, who was hospitalized with COVID in the spring, said that PPP lending helped keep them afloat during the pandemic.
Biz2Credit examined the financials of 300 small business owners who received funding through the Paycheck Protection Program (PPP). PPP lending, which commenced in April and was extended until August 8, has thus far distributed over $521 billion to nearly 5 million small and mid-sized businesses across the U.S.
The PPP was created to help small employers continue to keep paying their workers for an 8-week period during the COVID-19 pandemic. The loans are forgivable as long as employers keep their workers on payroll. Overhead expenses, including rent and utilities, are also included. This legislation was included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act and signed into law on March 27, 2020. Already extended beyond the original deadline of June 30, the PPP now closes for new applications at 11:59pm on August 8.
"The (PPP) money we received won't last forever," Mortarulo said. "Outdoor dining is sustaining us, but the temperatures are going to drop soon. If you told me there was a finish line in October or a date when inside dining is coming, I'd be more optimistic. There is just so much uncertainty. A lot of places are already gone."
On August 3, the CEOs of more than 100 companies – including Starbucks, Microsoft and Mastercard – called on Congress to continue federally guaranteed loans into 2021 and to provide flexibility in how that money is put to use.
“Small businesses are too critical to our country’s economic strength to let fail,” the letter read. “From retailers and restaurants to consulting firms and manufacturers, small business owners are facing a future of potential financial ruin that will make the nation’s current economic downturn last years longer than it must.”
“Funds must flow to all small business in need, particularly those run by people of color,” said former Starbucks chairman and CEO Howard Schultz, who spearheaded the effort.
Meanwhile, Congress continues to consider new legislation that could allow small business owners to take a second PPP loan, if they have fully used the funds received in the first one. Lawmakers have been considering this action (referred to as ‘PPP2’ by many in the industry) since it was announced publicly on July 27, although negotiations are continuing.
“A lot of small business owners were caught between a rock and a hard place; they had little money coming in, yet they had obligations to pay,” Arora said. “Everyone suffered. After all, many times the landlords themselves do not have deep pockets and rely on their rental income to survive.”