Small Business Week Report

67% of Successful Small Business Merchants Embrace Social Commerce

April 2024

PYMNTS Intelligence data also identifies those sectors that appear to have the strongest staying power — and which factors characterize SMBs with the lowest risk.

SMBs have maintained a relatively low risk of closure over the past year, even as the U.S. business bankruptcy rate has risen.
Closure risk varies among SMBs, yet larger ones offering more diverse sales channels have the lowest risk of shutting down.
Overall, the risk that SMBs close is now 44% less than three years ago.


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    Periodically, PYMNTS Intelligence takes the pulse of the U.S. economy by looking exclusively at what is going on with the small to mid-sized businesses (SMBs) that populate Main Street.

    According to our most recent “SMB Growth Monitor Report,” based on surveys of 524 U.S. SMBs annually generating $10 million or less in revenues, despite some inescapable signs of economic turbulence, most of these businesses operate in relatively calm waters — at least compared to four years ago.

    Key Findings

    SMBs maintain a low risk of going under, even as the overall U.S. business bankruptcy rate has risen.

    The risk that these businesses will close anytime soon has decreased three-fold since October 2020, when it peaked at 24%. Now, roughly 7.3% operate under the shadow of shutting down.

    As the chart above shows, the risk of closure has remained relatively steady since July 2022, with less than 10% of SMBs considered at risk. An upbeat footnote to this news is that nationally, SMBs have been rebounding from downturns with greater agility than their larger counterparts. Current bankruptcy filings for large U.S. companies are now higher than those facing SMBs.

    Diversity in sales channels matters.

    Larger SMBs offering the widest range of sales channels face the lowest risk of shutting down.

    Of course, all SMBs face some degree of economic uncertainty. A second key finding from the research was that supporting more sales channels can place these businesses in safer waters. In fact, our data revealed that those offering in-store and online sales report a likelihood of failure of just 5%.

    On a more dour note, although we found large firms stand the greatest chance of success, firms with the smallest headcounts — just one employee — run the highest risk of closing, at 13%.

    Though this highlights the struggle startups face, it also calls out the benefits of investing sooner rather than later to increase headcount as it may contribute to longevity.

    SMBs operating in sectors such as hospitality may be in a better position than others, with retail the riskiest proposition.

    SMBs in the hospitality sector report a 32% decrease in risk compared to July 2022. Businesses in the construction and utility sectors also see less risk than two years ago, to a much lesser degree. SMBs in personal and consumer services and professional services face slightly more risk now (the mid-6% range) than in 2022 (approximately 5.2%). Still, even that has tapered from a peak in January 2023.

    However, one outlier showed heightened risk throughout the last year. This can be seen in the chart below, which tracks at-risk rates over a three-quarter rolling average. Retail SMBs now operate under a cloud of double-digit (10.6%) risk of closure, nearly double from January 2022.

    Conclusion

    Lenders working with SMBs know they are dealing with businesses that operate under a shroud of risk. However, because SMBs across the board currently run lower levels of risk, they may have a better chance to access financing.

    One solution for lenders seeking to work with higher-risk SMBs might be to open up more financing sources. Research found that 64% of SMBs at risk do not currently have access to any financing sources. Conversely, 47% of those with access to financing report no danger of closing. As mentioned earlier through headcount data, the quicker that smaller SMBs can grow, the higher the likelihood they can succeed.

    About

    PYMNTS INTELLIGENCE

    PYMNTS Intelligence is a leading global data and analytics platform that uses proprietary data and methods to provide actionable insights on what’s now and what’s next in payments, commerce and the digital economy. Its team of data scientists include leading economists, econometricians, survey experts, financial analysts and marketing scientists with deep experience in the application of data to the issues that define the future of the digital transformation of the global economy. This multi-lingual team has conducted original data collection and analysis in more than three dozen global markets for some of the world’s leading publicly traded and privately held firms.


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