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Small Business Finances During COVID-19

Small Business Financial Outcomes during the Outcome of COVID-19

JPMorgan Chase & Co.

First published June 2020

The COVID-19 pandemic has affected every aspect of everyday life, from work to leisure. Even before a national emergency was declared on March 13, 2020, Americans began limiting their movements in an effort to contain the virus’s spread. In the weeks that followed, many states issued stay-at-home orders and closed nonessential businesses. Consumers cut their spending (Farrell, Greig, et al. 2020a) and shifted some of it online (Farrell, Wheat, et al. 2020).

For many small businesses and their owners, this was an unprecedented adverse shock. The typical small business maintains cash reserves to cover about two weeks of outflows in the event of a total revenue disruption (Farrell, Wheat and Grandet 2019). Some small businesses were able to shift to alternative channels, such as online sales, and many were able to reduce expenses to offset the loss of revenue. Others temporarily closed.

This report provides a first look at the effect of COVID-19 and the ensuing economic downturn on America’s small businesses. We examine small business changes in cash balances, revenues, and expenses through April 2020 using a de-identified sample of nearly 1.3 million small firms nationwide. This sample is based on the anonymized transactions of deposit accounts and represents both nonemployer and employer firms. The vast majority—over 80 percent—of small businesses are nonemployers, which is reflected in our sample.

Together, cash balances, revenues, and expenses provide a summary of small business financial health. Balances provide the liquidity firms need, especially when they experience an adverse shock. Revenues and expenses indicate the amount of business activity, which may be reflected in cash balances. However, cash balances are not simply the net change in revenues and expenses: Business owners may also transfer personal assets or secure other financing to replenish their balances.

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