Small Businesses Are Using Personal Funds to Stay Afloat

Small business owners have tapped into personal savings accounts to keep their businesses afloat during the pandemic. According to data from Los Angeles-based Expertise.com, 31.4% of small business owners have used personal funds in the last two months toward their businesses. The same study also showed that nearly 20% of business owners worry about going bankrupt and 18.9% worry about the business permanently shutting down.

“Many small businesses aren’t prepared for economic hits—one out of two small businesses stay in business for more than five years — so steep reductions in business can be devastating,” David Franklin, general manager at Expertise.com, tells GlobesSt.com. “Without access to funding during a time of crisis, many SMBs are faced with two hard choices, either shut down or tap into their personal funds until the economy recovers.”

It is well known that CARES Act released two rounds of PPP funding intended to help small business owners survive the pandemic—at least until the recovery starts. However, the PPP funding in some cases has not made it to the small businesses that need it. “PPP is confusing and the rollout of financial support has been underwhelming for many small businesses,” says Franklin. “We’re seeing reports that most of the funds available are going to large companies, which forces small business owners to fend for themselves to try and stay afloat. Our survey supports this as over 31% of small business owners are having to withdraw from their personal savings.”

While the data showed that many small businesses are suffering, 34.8% of respondents said they are not worried about permanent or temporary closures or bankruptcy. This shows that a significant portion of small business owners have been able to adapt to the current market. “If possible, many small businesses are moving online. These businesses are more insulated from the economic crisis caused by COVID-19,” adds Franklin.

This event will also likely lead to permanent changes for small businesses in terms of cash reserves, budgets and general business operations. “I anticipate that small business owners will likely start keeping more cash reserves, if they can, by holding off on business expansions, large purchases, and hiring,” says Franklin.

Expertise.com’s survey included businesses from a broad spectrum of industries to get a quality sample of the state of the market. “We surveyed small businesses from multiple industries from construction and manufacturing to retail and restaurants and more,” says Franklin. “Unsurprisingly, small business owners within the hospitality industry are the most worried with 73% worried about either going bankrupt or permanently shutting down followed by education small businesses, 72%, and entertainment/recreation small businesses, 60%.