Fed: Pandemic didn’t destroy quite as many businesses as feared

As we move back toward normalcy, it’s important to ask how the overall economy is faring. Did the pandemic leave us with a shattered economy? Has main street died off? Is it still worthwhile to start a business, or will the economy just swallow it up?

According to the Federal Reserve, about 600,000 businesses fail in a given year – most of them small businesses. Central bank researchers estimate that, between March 2020 and February 2021, an additional quarter to a third failed. That includes approximately 100,000 failures among businesses that operated in close-contact services like barber shops and nail salons. That sector saw the highest losses.

Those losses were offset, though, by sectors that saw growth, including restaurants with carry out and delivery, grocery stores and outdoor recreation companies, according to Reuters. Companies that were able to pivot towards the needs of people during the pandemic saw fewer failures than usual. The net result was a blow to the economy, but not as big a blow as had been expected.

We’re not out of the woods yet

This Fed study sounds a positive note and indicates that we’re seeing a faster economic recovery than many economists expected. Top Fed officials appear confident that the U.S. has dodged much of the potential permanent damage to the economy.

That said, the Fed acknowledged that there could still be more business failures, especially if banks, creditors and landlords clamp down instead of remaining flexible on terms.

The study doesn’t account for the fact that many surviving companies did cut staff or reduce operations. It also doesn’t account for the disproportionate losses among women and minority groups.

The Fed researchers note that huge numbers of businesses did shut down in spring 2020, but by August the economy saw “no evidence of excessive, ongoing business inactivity; in fact shutdown was well below normal by late 2020.”

Federal aid seems to have helped

Small businesses seem to have been more resilient than expected, but they also benefitted from low-cost loans through the Paycheck Protection Program and other federal programs. Roughly 9.5 million companies participated in the PPP.

If your business is still struggling, you are not alone. A business attorney can help you find ways to regain profitability or help you reorganize your debt through Chapter 11 bankruptcy.