The COVID-19 pandemic has been a true challenge for U.S. small- and medium-sized businesses, with 42% closing their doors for good, according to the Society for Human Resource Management.
And the roller-coaster ride is still far from over, as 2021 promises to have some major loops. But there is good news on the horizon in the form of new Paycheck Protection Program (PPP) loans and a set of notable industry shifts that may provide new opportunities for small business owners.
Here’s what you need to know about PPP loans
The Paycheck Protection Program offers loans to small businesses to help them keep their workers on payroll. As of Feb. 7, the PPP program had distributed $623 billion in loans to more than 5,000 small businesses.
While the first round of loans ended in August 2020, Congress passed a $900 billion stimulus bill at the end of the year that reopened the PPP with $284 billion in new funds. Applications for loans covering employee salaries for eight to 12 weeks of operations were welcomed starting Jan. 11.
The loans are available both to those who have not yet gotten one and to those who exhausted their first PPP loans. To apply, find a lender via SBA’s Lender Match tool. To have the loan forgiven, you must maintain employee compensation levels, spend the money on payroll costs and other eligible expenses, and ensure that at least 60% of the funds go toward payroll costs.
Small businesses will be prioritized during this tranche of PPPs, which comes with some new rules to channel the funds to those who need them most instead of to better-resourced businesses, as notoriously happened in the first round. There is a new size standard, a new automated review system, and a prioritization of lending via community financial institutions that serve low-income, minority-owned, and other disadvantaged businesses.
2021 Insight: 7 trends for small business owners to know about
1. Shifts in lending
The global economy may well rebound as things improve in 2021, but global GDP is still likely to be around $9.3 trillion (in U.S. dollars) lower than experts previously predicted. According to Deloitte, a contraction in the global economy has already resulted in fewer and smaller business loans.
While that may sound like tighter lending will continue in the near term, there are new opportunities for consumers and small businesses to borrow using digital pathways that have been strengthened over the last year. For instance, businesses may benefit from an increase in digital apps and other options for financial transactions.
Alternative lenders that operate largely online are also expected to boom in 2021. Small businesses and startups seeking loans may be able to gain easier or expedited access by looking into these financing options as opposed to traditional brick-and-mortar banks. And with federal interest rates hovering near zero, it’s a good time to borrow.
2. A renewed focus on meeting customer needs
With social distancing in place and customer anxiety still high, the needs of shoppers will remain different in 2021 than in years past. Businesses should continue thinking about how customers need and want to shop. Do they want to come to a store? Are they more interested in e-commerce?
While it can be tempting to try to reach out to find new customers when you see sales slipping, it’s important for business owners both to ensure that they’re keeping current customers happy and that they aren’t overextending. Social media can be a friend for low-stakes, low-cost, online marketing. About three-quarters of Americans use social media, and last year one-fifth of U.S. consumers used social media to shop online.
3. A transition to alternative payment options
Alternative payment options have risen in prominence during the pandemic, and the trend is unlikely to cool down anytime soon. According to a survey of consumers by Forrester Consumer Technographics, 19% of respondents said they made their first digital payment last year.
Thanks to COVID-19, contactless payments are also on the rise. A National Retail Federation survey found that retailers experienced a 69% increase in the use of no-touch payments, including contactless cards and mobile pay, during 2020. Almost all — 94% — of retailers who have been using contactless payments expect that the trend will continue for at least the next 18 months.
4. Flexibility in work arrangements
Remote work is in vogue these days, and it’s unlikely to die down anytime soon. A survey by Intermedia found that 57% of small business owners plan to keep offering remote work arrangements over the long term. Respondents found remote work useful not only because of its flexibility, but also because their workers are happier.
Other surveys back up those findings. The Chase Business Leaders Outlook survey of 1,000 businesses across 12 industry sectors found that 77% of respondents believe companies should allow flexible working arrangements post-pandemic, and 56% are considering such arrangements for their own companies.
5. Continued prioritization of e-commerce and virtual services
While e-commerce was going strong before the pandemic hit, a report by IBM found that the coronavirus outbreak sped up its progress by about five years. U.S. e-commerce in the first nine months of 2020 broke records, with consumers spending $546.62 billion, the highest-ever recorded rate for the period.
One e-commerce trend that will continue to gain momentum is the role of social media in brand and product discovery; another is the increasing uptake of grocery e-commerce options.
Virtual services have also been in high demand this last year, according to the U.S. Chamber of Commerce, especially services related to cybersecurity, at-home fitness, food delivery, gaming, and telemedicine. The demand for these virtual services is likely to remain strong, so those looking to start a new business or pivot in a new direction may want to take notice.
6. A priority on establishing cash reserves
Businesses are likely to make changes to their money-management strategies to prepare for financial uncertainty. This includes maintaining bigger cash reserves and looking for areas to increase efficiencies.
These shifts have already started. Two-thirds of respondents to the Chase Business Leaders Outlook survey have saved a cash buffer since the start of the pandemic. Many expected to save even more in 2021. One-quarter of respondents said they will create contingency plans for the future.
Even though small business credit cards often have lower APRs than consumer cards, establishing a cash reserve can help you avoid taking on debt during uncertain times.
7. A focus on values over profit
Half of the respondents in the Business Leaders Outlook survey feel that the pandemic has changed them for good, instilling a greater appreciation for health and family. As business owners, they are placing greater value on community, lean operations, employee well-being, and digital tools.