By Michael S. Derby 

Even the best-managed small businesses are in a very vulnerable position as they try to weather the shutdown of much of the U.S. economy during the coronavirus crises, according to the Federal Reserve Bank of New York.

A report released Tuesday by the bank said that among "healthy" small businesses in late 2019, about 20% of them had enough cash saved to operate normally for only two months if their revenue were to dry up. Among less financially secure companies, only 10% could operate normally on savings alone for two months.

The report said that if small firms were forced to cut back, healthy firms would most likely cut staff or pay, while troubled firms would more likely try to borrow to stay in business.

The New York Fed report defines small businesses as those with fewer than 500 workers. Its findings were based on a national survey done in late 2019, in conjunction with the other 11 regional Fed banks.

The bank noted that many firms were already struggling going into the coronavirus crisis: Nearly two-thirds of respondents said that over the prior 12 months they had faced problems such as struggling to pay for operating expenses, including payrolls, or to line up needed credit.

"The data underscore that while small firms reported a strong end to 2019, many continued to deal with financial challenges, and even the healthiest of firms could face tough decisions amid a sustained loss in revenue," Claire Kramer Mills, director of community development analysis at the New York Fed, said in the report.

She said the report's findings can help the government aid business in the current crisis. "By shedding light on the channels through which firms may seek financial recourse, the data can inform the design of new loan and grant programs and offer insights on how to reach businesses in need,"

The report also affirmed a long-running truth about small businesses: Borrowing that is available to large companies is less accessible for more modest size firms. Despite a year that saw rising revenue and increased hiring at small businesses, the New York Fed report said that just under half of survey respondents got credit from a bank in 2019, with less half reporting any bank credit at all in the past five years.

The report also noted a stark racial disparity in who accessed credit. Only 23% of companies with non-Hispanic-black ownership lined up a bank loan, for example, compared with 46% of small firms owned by non-Hispanic whites.

The government's economic response to the coronavirus crisis first targeted financial markets before extending support to other parts of the economy, be they small firms or households. On Tuesday, Senate leader Mitch McConnell (R., Ky.) said he would try to get more funding for the congressional program extending loans to small businesses under the Cares Act.

On Monday, the Federal Reserve said it was creating a new program that would finance loans channeled through the government's emergency small-business lending program.

Meanwhile, the National Federation of Independent Business said Tuesday that its March Small Business Optimism Index booked a record monthly decline of 8.1 points, falling to 96.4. In a statement, NFIB Chief Economist William Dunkelberg said "it is vital that these businesses have access to federal funds that are made available through the Cares Act to keep the doors open on Main Street."

Write to Michael S. Derby at


(END) Dow Jones Newswires

April 07, 2020 14:36 ET (18:36 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.