The first half of 2020 was a tough time to run a small business on Main Street as stay-at-home orders closed down restaurants and retailers for much or all of the past five months. That left small and medium-sized businesses (SMBs) scrambling to rapidly switch to digital to keep at least some revenue coming in.
“That first 60 days of the shutdown was really that critical time when the small businesses in most of the markets had to make a quick pivot and move into this new digital environment if they weren't already there,” Visa’s Kevin Phalen told Karen Webster in a recent conversation. “And they had to expand out their consumer base.”
That requirement of rapid change left many Main Street merchants deeply shaken and worried about their futures. Early on in the pandemic, more than half of those we surveyed (58.4 percent) told PYMNTS in our Main Street on Lockdown study that they were either unsure if their business would survive through the pandemic or were fairly certain it wouldn’t.
That seems pessimistic until one considers reports that one-third of New York City’s 240,000 small businesses will likely fail, taking roughly 500,000 jobs with them. Not surprisingly, commercial rents in the city’s most popular shopping districts have already started to plummet.
The SMB closures stem in many cases from a mounting cash-flow gap, according to a collaborative report by Visa and PYMNTS. Some 76 percent of merchants we studied reported suffering from at least occasional cash flow issues since the outbreak began. That includes nearly half of Main Street SMBs (49 percent) who reported cash-flow challenges “sometimes” or “frequently.” Of those, 83 percent attributed the problem in whole or in part to the pandemic.
As for how they’re navigating those shortfalls, 37 percent of SMB owners are tapping personal funds, while 26 percent are using personal credit cards. Many are also turning to the option of not paying out funds they should. Some 18 percent reported purposely delaying their supplier payments, while 20 percent are delaying payments to their employees.
But such solutions are only temporary stopgaps — and insufficient given that merchants expect the pandemic to depress their business for 222 days on average.
Unsurprising, the survey also demonstrated surging interest in real-time payments settlement. After all, SMBs often lack access to other funding sources to fill holes in their cash flow.
“One of the digital tools in which Main Street SMBs show great interest is real-time merchant fund settlement,” the PYMNT/Visa study found. “Nine out of 10 surveyed Main Street SMBs would consider using real-time settlement capabilities if available, and four out of 10 surveyed Main Street SMBs say they would be ‘very or ‘extremely interested’ in switching to point-of-sale (POS) providers or acquirers that offer that capability.”
As for why firms are interested in real-time payments, 58 percent reported a desire to improve cash flow, while 57 percent cited wanting access to funds at any time. Some 28 percent desired real-time payments because they don’t have access to a line of working capital, while 22 percent said such systems would help them pay their vendors on time.
In fact, upgrading digital capabilities has been one thing that Main Street SMBs have embraced during the pandemic. Our study found that businesses of all types – but especially SMBs – are using the pandemic as an impetus to bring their digital presence up to date.
According to our survey, 71.7 percent of SMBs have been improving or adding digital capabilities since the crisis began. Additionally, 49.4 percent have added or improved upon existing online order-ahead for pickup features, while 50.1 percent have added or improved their eCommerce portals.
We also found that 47.3 percent have enhanced or added mobile-wallet capabilities, and 46.9 percent have done the same for digital invoicing. The majority of SMBs also reported that COVID-induced digital shifts will have a lasting if not permanent effect on commerce in both physical and digital environments.
“A plurality of SMB owners will maintain the digital innovations they have developed to help their firms survive during the pandemic, and many intend to invest in more digital innovations in the future,” our survey found. “Forty-two percent of SMB owners say they have developed new digital capabilities to cope and will maintain them after the pandemic, while 36 percent say they will invest more heavily in developing new digital capabilities after their local economies reopen.”
Perhaps that’s why Visa found that SMB owners remain incredibly optimistic despite their incredibly challenging first half. According to in Visa’s new Back to Business study, three-quarters of SMBs (75 percent) reported being positive about the future.
“The thing that really blew me away was how optimistic small businesses are,” Phalen told PYMNTS. “They are also still concerned, but they’re looking at this like they are going to hunker down and get through it. That was very evident in the study — and not just in the U.S. but in all eight of the markets in which we did the research.”
Such optimism is good news for the economy, given that more than half of all workers are employed by SMBs. After all, the big economy can’t really recover until the small one does.