U.S. government lending programs restored sufficient capital for businesses to weather the effects of the COVID-19 pandemic for a short period, but many firms are currently operating at a monthly loss, according to Biz2Credit’s new six-month analysis of COVID-19’s impact on small businesses.

The study found that since the Paycheck Protection Program (PPP) expired in August, many companies are operating at negative cash flow and up to 30% could close forever by the end of 2020.

Biz2Credit compared cash flow data in the pre-coronavirus period of 2020 and the first six months of the pandemic (March to October). The data was collected from nearly 11,000 businesses across the country in all industry sectors that applied for funding through Biz2Credit’s online financing platform.

The Biz2Credit Small Business Economic Indicator Study is based on proprietary data directly from the financial transactions of tens of thousands of small businesses with Biz2Credit’s Bank Statement Analyzer technology. Using AI/machine learning to identify week-by-week revenue, expenditure, profit margins and other SMB cash flow trends, the study identified trends along different dimensions, including industry sector, region and PPP funding outcomes.

The study examined proprietary credit and cash flow information gathered directly from anonymous financial transactions made by financing applicants, as well as results from a survey of small business owners taken during the summer. In examining the economic impact of COVID-19, Biz2Credit identified five critical phases of the pandemic’s impact on small business owners:

  • Stage One (Feb. 26 – March 17): Initial adjustment by businesses to pandemic conditions
  • Stage Two (March 18 – April 14): Peak pandemic conditions
  • Stage Three (April 15 – June 23): Economic reopening and start of recovery
  • Stage Four (June 24 – Aug. 11): Weakening of small business recovery
  • Stage Five (Aug. 12 – Oct. 6): Post-PPP, a further weakening of the recovery


“We expected revenues to be down. However, sales sunk even lower after PPP expired. Meanwhile, costs are accelerating faster than revenues and the enhanced unemployment benefits dried up in late summer,” Rohit Arora, CEO of Biz2Credit, said. “Many companies are operating at a loss right now and they cannot sustain it long term. With the potential of further lockdowns because of COVID’s second wave, I fear that more than 30% of small businesses could go bankrupt in 2021.”


Other Key Findings

  • The median small business is experiencing a negative cash flow margin (June 24 – Oct. 6), which means they are spending more than they are earning each week.
  • Initially, the Northeast and Midwest were hit the hardest economically by COVID-19, while small businesses in West and South were relatively less impacted. All regions are weakening in the post-PPP period.
  • About 60% of businesses closed due to COVID-19 at some point. Companies that closed experienced an 87% drop in revenue compared with 2019.
  • In stage one of the pandemic, 5.4% of small businesses experienced at least one week of zero revenue. By stage two, that number jumped to 8.3%. During stage five, the number leveled off at 7.5%.
  • Expenditures on personal protection equipment (PPE) resulted in a 15-point reduction in gross margins on average. Businesses reported investing approximately $29,230 in PPE and renovations to deal with COVID-19.
  • Restaurants are even worse off, spending approximately 78% more on PPE than other businesses and shelling out $52,106 on average.
  • The average revenue for restaurants was down 72% and, surprisingly, the average number of online orders or takeout orders was down 38%. That’s compared with the 52% decline for other types of businesses, marking a 20-point deficit for restaurants.
  • Only 20% of businesses were offered rent or mortgage deferrals by their landlord or mortgage company despite pleas from local government officials, such as New York mayor Bill de Blasio, to give business owners a break. Many of those that offered payment allowances during the worst months of the pandemic looked to make up for their lost revenue as counties reopened.
  • The average cost of recovery (PPE plus renovations) was $21,553 for businesses that were closed due to COVID-19.
  • Government cash relief has had varying impacts on cash coverage weeks by industry sector. The infusion of money from the PPP and SBA loans had the greatest impact on retail services and healthcare and social services organizations. The funding had less impact on food and accommodation, B2B services and retail trade.
  • SBA relief has raised cash coverage to three months from just half a month. However, only about 30% of this amount is from the PPP, while the other 70% of the impact was driven via the SBA Economic Injury Disaster Loans (EIDL) program, indicating that EIDL may have afforded businesses more staying power than the PPP alone.

“Persistent revenue stress on small businesses is a major concern. Many companies have endured multiple weeks of little or no cash inflow to offset mounting expenses and debts. If they close, unemployment claims will jump since small businesses create two-thirds of private sector jobs in the economy,” Arora said.


Additional Discoveries


  • Differential impact across industry sectors: Accommodation and food services remain the hardest hit sectors. Construction, IT, wholesale trade, manufacturing, transportation and warehousing have been the most resilient sectors. Retail has recovered the most from the early pandemic impact.
  • The PPP had a large but short-lived effect: The CARES Act’s PPP lending gave a significant boost to the cash flow of small businesses and kept millions of companies from going bankrupt between April and August. However, the PPP has been a one-time event and its impact on overall business health will ultimately be limited unless the program is extended again.
  • Washington lawmakers must enact new stimulus plans fast. While large corporations can access capital markets, small businesses must carefully monitor revenue and adjust costs in direct relation to their cash inflows. Many firms have been operating at a negative cash flow for months.