Photos by Nathan Dumlao and Mike Petrucci / Unsplash

New research indicates federal and local COVID-19 relief programs were effective in helping to buoy small businesses with injections of cash earlier in the pandemic. And as the pandemic drags on, additional action may be necessary.

Across the U.S., the health of local economies largely depends on the strength of small and midsized businesses. They account for 63.2% of consumer spending in the Greater Houston area, and in the city of Houston alone, the share of spending at small and medium businesses is almost 70%, according to the JPMorgan Chase Institute (JPMC).

When much of the economy was shut down in March to combat the coronavirus pandemic, consumer spending plummeted. But, like many things related to this pandemic, the burden hasn’t been borne by all industries equally. Spending at grocery stores has never dropped into negative territory, while general goods, home goods and pharmacy spending recovered fairly quickly following initial declines. Total consumer spending in the Houston area has returned to roughly the same level it was in January, but spending related to the arts, entertainment and recreation industry and the transportation industry remains well below pre-pandemic levels. That’s according to Opportunity Insights’ COVID-19 economic tracker, which also shows the pandemic’s impact on the nation’s small businesses. In the Houston area, small-business revenue decreased by 44.2% as of Nov. 9, compared to January. That’s among the small enterprises that have managed to stay afloat. Compared to January, the tracker shows there are almost 40% fewer small businesses open in the Houston metro area.

Business closures rose sharply early in the pandemic

From February to April, the number of active business owners dropped 22%, according to a study from the New York Federal Reserve. If that statistic weren’t dramatic enough, the news is even more grim for businesses owned by people of color. Black-owned businesses saw declines of 41%, Hispanic-owned businesses fell 32% and Asian-owned businesses decreased by 26%.

In Texas, the number of active Black business owners fell 5% from February to May, and another 7.8% from May to June. The state's three-phase reopening began May 1.  

The New York Fed study found that:

►Black-owned enterprises are more likely to be located in areas where COVID-19 infection rates are higher. In contrast, white-owned businesses are less likely to be located in the hardest hit areas.

►Coverage gaps left by the Paycheck Protection Program resulted in loans reaching only 20% of eligible businesses in areas with the highest densities of Black-owned businesses. In Harris County, only 16% of eligible Black-owned businesses received PPP loans from the federal government.

►Businesses owned by African Americans had very little buffer even before the pandemic because of limited cash holdings, weaker banking relationships and funding gaps.

Policy interventions achieved their goals

Small businesses in the “leisure and hospitality” and “retail and transportation” industries have suffered the greatest revenue losses since January: -80.7% and -35.2%, respectively.

Typically, a small business’s ability to survive is tied closely to revenue and cash liquidity. Research from JPMorgan Chase Institute in April found that 50% of small businesses didn’t have a cash buffer large enough to keep business going for 15 days. On average, small businesses in Houston had 15 cash buffer days — 46% had less than 14, while 37% had more than 21.


This post is part of our “COVID-19 and Cities” series, which features experts’ views on the global pandemic and its impact on our lives.


Significant declines in both cash on hand and revenue typically would be a deadly combination for businesses, but these aren’t typical times. Researchers from the JPMC Institute examined changes in the cash balances, revenues and expenses of small businesses in 25 metropolitan areas from early March to late September and found that early into the fall, many small businesses had reserve cash at levels much higher than they normally would, despite the slow recovery of revenue.

The researchers find it unlikely businesses generated savings by cutting expenses more than revenues, instead attributing the growth in cash liquidity to funds received through policy interventions such as the Paycheck Protection Program and CARES Act programs like the City of Houston Small Business Economic Relief Program.

Looking at median expense growth for small businesses over three weeks, the researchers found that the fluctuation in how much expenses rose and fell varied greatly across metros. The three weeks they compared were:

►  The week ending April 10, in which there was a 15% overall decline in median cash balances — the largest in the seven months.

►  The week ending Aug. 21, which saw peak median cash balance gains of 41%.

►  The week ending Sept. 25 — the last week in the data series, when the median cash balance was 35%.

Early in the pandemic, small-business owners saw both expenses and revenue fall because of the shutdown. Then, from mid-April to May, the researchers found that cash balances spiked sharply, as assistance began to come in. From early May to early July, revenue outpaced expenses for many businesses. Then, from early July to the end of September, the median growth of expenses was higher than that of revenue.

By the end of September, revenue recovery remained slow and expenses were down an average of 7% for the nation’s small businesses; however, according to the research brief, the extent of expense growth and decline varied among cities. In Seattle, New York and San Francisco small businesses had expenses that were more than 10% lower than the year before. While in Sacramento and Atlanta, expenses were back to where they were before the pandemic. As of Sept. 21, expenses for Houston-area small businesses were almost back to normal levels, just 1% lower than they had been in September 2019. (On average, expenses for Houston small businesses dropped 33% in April, compared to the same time in 2019. By late August, median expense growth had increased, but was still 3% less than the year before.)

The researchers warn that business owners may be putting off maintenance and upkeep, as well as freezing or reducing the wages and benefits of their employees to maintain cash liquidity, which may make long-term recovery more difficult.

“Small business expenses remain down year-over-year, and while this may be helping small business owners maintain cash on hand in the short-run, it may not be a viable long-run strategy as they forgo expenses like wages or maintenance,” says Chris Wheat, director of business research at the JPMorgan Chase Institute.

They also point out the recent trend of expenses growing faster than revenue, which could mean business owners are now having more trouble deferring payments than earlier in the pandemic. If that’s the case, they say, policymakers may be forced to consider additional measures to help the small-business sector survive COVID-19 and recover fully in the post-pandemic world.

And don’t forget that COVID-19 cases — along with pandemic fatigue — currently are surging out of control in the U.S., just as Americans head into the holidays and the coming (colder) winter months. As the temptation to let complacency take hold grows greater, it’s important to keep the beloved — and essential — small businesses in mind when making decisions that could limit or fuel the spread of the disease. By staying safe and healthy, we can continue to support small businesses and the owners, employees and families that those businesses support.