Survey: Smallest businesses face a looming rent crisis
Small businesses across the nation have been battered by the COVID-19 crisis, but the smallest businesses that typically have fewer resources than their larger peers have faced even greater setbacks. In order to better understand how the smallest and most vulnerable businesses have been impacted by the pandemic, a recent survey examines how they fared compared to their larger small business peers based on key indicators. The survey reveals that microbusinesses are facing particular financial challenges, and a commercial rent crisis may be on the horizon.
The survey, conducted in partnership with Start Small Think Big, surveyed more than 1,300 small business owners nationwide at the beginning of 2021. For the purpose of this report, “smaller firms” means businesses with less than $100,000 in revenue and “larger firms” means businesses with more than $100,000 in revenue. More than a third of respondents were California small business owners.
More than of half of those surveyed (52%) have less than $100,000 in revenue and five or fewer employees. The survey sample also comprised a large share of woman-owned businesses (roughly twothirds of respondents) and minority-owned businesses (54%), providing important insights from small business populations that have historically faced systemic barriers to accessing capital and resources. Black-owned firms comprised 41% of smaller firms, compared to 15% of larger firms. Meanwhile, whiteowned firms made up half of larger firms and just a quarter of smaller firms.
The survey found that most small businesses (78%) that rent or own their business space say they are struggling with their rent. Importantly, nearly half (46%) of businesses with under $100,000 in revenue with commercial space are one or more months behind on rent, compared to 36% of larger firms. Overall, 1 in 4 of those with rent or mortgage obligations are three or more months behind on payments. One in six small businesses plan to exit their mortgage or lease in the coming year. This may be a looming crisis for small businesses, particularly for the smallest firms. The Federal Reserve, in a report to Congress in February, warned that high commercial real estate prices and an increase in business debt during the pandemic could lead to a wave of commercial foreclosures and evictions. Some local jurisdictions have acted to help struggling businesses; however, there is no federal moratorium to protect small businesses that are still struggling to pay their rent or mortgage due to continued losses in revenue.
In addition to struggles with rent, small businesses are facing significant financial setbacks. At the time the survey was fielded, nearly 1 in 5 reported their business was temporarily closed, and 62% reported their revenues had declined in the past month. Looking ahead, an astonishing 56% of all firms said that they expect they can only survive three months or less without additional funding or market changes. Entrepreneurs of color and smaller businesses were also more likely to say they would survive less than three months without additional capital relief.
As this survey revealed, the smallest businesses and those owned by people of color have faced greater challenges in the past year compared to their larger counterparts that may have been better positioned to withstand a crisis. In order to prevent a new wave of closures among microbusinesses, policymakers must examine ways to provide rent and mortgage relief and additional capital into the hands of these entrepreneurs