A recent Federal Reserve report found that small businesses without employees were more successful in obtaining Paycheck Protection Program funding from community banks than larger financial institutions and credit unions.
While overall non-employer firms were seen as less likely than their small business employer counterparts to seek emerging funding, those that did were more likely to receive all the funding they sought at small banks (63 percent), besting the 52 percent at large banks, 46 percent at credit unions and 45 percent at online lenders, according to the study. The report found that non-employer firms that did not seek PPP loans most often said they chose not to because they did not expect to qualify for the loan or loan forgiveness.
The report, intended to supplement the findings from the 2020 Small Business Credit Survey, also found non-employers to be the most satisfied with the support they received at community banks during the pandemic compared to other financial institutions. Forty-two percent of non-employer applicants reported being satisfied with their experience at community banks, compared with 39 percent at credit unions, 29 percent at large banks and 28 percent at online lenders. The survey found that non-employer firms accessed Covid-19-related small business assistance at lower rates than employer firms, though many non-employers received enhanced unemployment benefits. Compared to employer firms that applied for financing, non-employers were less likely to seek financing at small banks and more likely to turn to online lenders and personal funds, despite being more likely to be approved.
The smallest businesses were seen as among the most impacted firms from the pandemic and associated public health shutdowns: Seventy-six percent of non-employers reported a revenue decline in the 12 months prior to the survey, and 32 percent characterized their financial situation as “poor” at the time of the survey.
“On average, non-employer firms reported larger declines in performance in the 12 months preceding the survey than employer firms, and non-employers also more often struggled to access the funding necessary to keep their businesses afloat,” the report found.
Non-employers make up 81 percent of all U.S. small businesses and are disproportionately owned by women and people of color. According to the report, while some non-employers are considered gig workers supplementing their income, a majority reported that their firm was the primary source of income for their household, and one-quarter reported plans to become employer firms within the next year. A similar portion of non-employers plan to add employees in the coming 12 months, a slight decline from 2019.