Categories: SMBs

The Main Street Cash Crunch, Quantified

Cash flow is the lifeblood of Main Street small business. Under COVID-19 cash flow dried up almost overnight, triggering what’s starting to look like a kind of mass extinction of small and medium-sized businesses (SMBs).

To understand and solve for the cash flow crunch on Main Street, PYMNTS’ new report The Road To Recovery: Main Street SMBs And Closing The Cash Flow Gap done in collaboration with Visa, examines the current financial state of Main Street businesses, with an eye on solutions.

“The result of [the pandemic] is a Main Street SMB sector that is no longer financially strong due to lockdown-imposed cash flow challenges,” the new report states. “Seventy-six percent of Main Street SMBs that PYMNTS surveyed on June 18, 2020, faced cash flow shortages as a result of the pandemic. This study, done in collaboration with Visa, also shows that 18 percent struggle with cash flow shortages on a frequent basis.”

It’s Time For Real-Time

Of all the findings in The Road To Recovery: Main Street SMBs And Closing The Cash Flow Gap, it is the appetite for instant money that stands out most in the new research.

“One of the digital tools in which Main Street SMBs show great interest is real-time merchant fund settlement. 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,” per the report.

Instant availability of funds could flip the script on shuttering SMBs with limited resources.

“For Main Street SMBs, whose only other reliable go-to sources of liquidity now might be personal savings, personal credit cards and/or conserving cash by pushing out the payment of rent and delaying vendor payments, real-time settlement is viewed as a welcome lifeline at a time when 60 percent of surveyed Main Street SMBs also say that their survival is uncertain.”

It’s a grave matter for many small business owners who have all but exhausted other funds.

“Our study shows that 37 percent of these cash-strapped Main Street SMBs that have experienced cash flow shortages within the past four months are tapping their personal funds to cover those shortages,” according to The Road To Recovery: Main Street SMBs And Closing The Cash Flow Gap. “Another 26 percent use their personal credit cards to do so and 23 percent ask family members or friends for help. Many Main Street SMB owners say they plan to apply for personal loans to help fund their businesses: 21 percent did so, but applicants cannot be sure of whether or not they will be approved.”

Not Everyone Wants Real-Time

Real-time settlement has always been super appealing, but more of a luxury than a necessity until 2020. Now, instant can’t be instant enough with time running out for many SMBs.

“Main Street SMBs are interested in real-time settlement to improve cash flows and access funds anytime, with 58 percent and 57 percent citing these, respectively,” per the report.

“We also find that 28 percent of Main Street SMBs are interested in real-time settlement capabilities because they currently do not have access to a working line of capital and 22 percent are interested because they believe it would help them pay their vendors on time.”

Interestingly, a fraction of Main Street merchants exhibit little to no interest in real-time payments. These are the SMBs with resources, and perhaps bigger lines of business credit. Their issue: chargebacks.

“Very few Main Street SMBs lack interest in real-time settlement capabilities, but those that are uninterested and do not have cash flow problems tend to cite fees and chargebacks as their reasons,” the report states.

“Twenty-seven percent of Main Street SMBs … are not interested in real-time settlement capabilities … because they do not want to pay added fees, while 26 percent worry about having to pay for chargebacks and refunds. Many Main Street SMBs that are uninterested also say it is because they either do not trust or do not understand how real-time settlement works.”

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The September 2020 Leveraging The Digital Banking Shift Study, PYMNTS examines consumers’ growing use of online and mobile tools to open and manage accounts as well as the factors that are paramount in building and maintaining trust in the current economic environment. The report is based on a survey of nearly 2,200 account-holding U.S. consumers.

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