Global State of Small Business
Small and medium-sized businesses (SMBs), which are vital to the global economy, face unprecedented challenges amid the COVID-19 pandemic. Lockdowns, social distancing, and economic downturns have led many SMBs to close and/or to confront revenue decreases, cash flow constraints, and workforce reductions.
The Future of Business Survey, an ongoing collaboration between Facebook, the World Bank, and the Organisation for Economic Co-operation and Development (OECD), surveyed small and medium businesses in more than 50 countries and regions in May 2020, to understand their experiences and need for support.
The research demonstrated widespread effects of the pandemic on SMBs, particularly among consumer-focused sectors, female-led businesses, and micro-businesses. In addition to direct financial effects, SMBs face issues arising from lockdowns — for example, adding child care and schooling responsibilities to the workday. These, too, disproportionately affect female business leaders.
Entrepreneurs are nonetheless resilient, and many remain optimistic about the future despite their circumstances. However, they have an urgent need for financial support such as salary subsidies, tax deferrals, and access to loans and credit.
Business Closures Show Uneven Effects
The imposition of lockdowns to reduce the spread of COVID-19 has forced many businesses to cease in-person operations. The survey found that between January and May 2020, 26% of SMBs closed — in some countries, more than 50%.
Consumer-focused sectors have been hit the hardest: 54% of tourism agencies and 47% of hospitality and event-focused SMBs were closed at the time of the survey. Micro-businesses, businesses owned and operated by one person, have felt these effects the most.
Female-led SMBs have also been disproportionately affected, being 7 percentage points more likely to be closed relative to male-led SMBs at the time of the survey. Not only do a greater proportion of female business leaders operate microbusinesses (37% compared to 24% for males), but female-led SMBs are more likely to be concentrated in the sectors most affected by lockdowns. Moreover, the more stringent the lockdown, the greater the gender disparity in closure rates between female- and male-led SMBs.
A larger proportion of female business leaders in this survey operated micro-businesses (37% of female-led businesses operated with no hired employees prior to COVID-19, compared to 24% of male-led), which demonstrated particularly high closure rates (30% compared to 25% for businesses with 1 or more employees).
SMBs Face Direct and Secondary Effects
Many SMBs that have remained open have experienced sales declines. Of SMBs that were operational at the time of the survey, 62% had lower sales in the previous 30 days relative to the same period in 2019. Among these, 57% reported a decline in sales of 50% or more. These drops often led to workforce reductions: one in three SMBs in operation reported that they had reduced staff as a result of the pandemic.
SMB leaders also have struggled to balance work and domestic responsibilities, with many managing child care and schooling while striving to keep their businesses afloat. This, too, disproportionately affects women: 23% of female business leaders reported spending at least six hours per day on domestic tasks and family care, relative to 11% of male business leaders.
Even as some economies begin to relax control measures, half of SMBs report that lack of demand is an ongoing challenge, with 37% referencing cash flow constraints. Meanwhile, their outlook for employment is mixed, with only 8% of SMB leaders saying they will look for new workers once they are able to reopen.
Demand for Financing Is High
Access to finance can be essential for SMBs, which tend to rely on current revenues and retained earnings. At the same time, this access can be limited because of SMBs’ smaller asset base, limited credit history and perceived risk profiles — factors that leave fewer resources to fall back on during economic downturns relative to larger businesses.
In recent months, financial assistance has been critical. Almost a quarter (23%) of SMB leaders surveyed reported that they were receiving financial support in response to the pandemic — the majority in the form of government grants and loans. However, 27% of SMB leaders reported that no assistance was available at the time of the survey.
SMBs’ path to recovery is not yet clear, and access to financing may continue to be critical as SMBs work to get through the crisis. Not surprisingly, 30% of SMB leaders suggested that they would be looking to receive salary subsidies, tax deferrals, and access to loans and credit.
In spite of their circumstances, SMB leaders remain optimistic. Among SMBs that were closed at the time of the survey, 74% expect to reopen as containment measures are lifted. Many SMB leaders have spent time during the lockdown preparing to reopen and adapting their business models — for example, by developing a digital presence.
Over the next few months, the research program will continue to monitor SMBs’ needs and challenges.