Small- and medium-sized employers more uncertain about the future as pandemic continues

Businesses continue to express caution about the future as the COVID-19 pandemic drags on. Many business owners say they are more uncertain now than just a few months ago about recovery from the economic downturn caused by the pandemic. Smaller and rural-based employers are harder-hit than larger employers.

The Principal Financial Wellbeing Index focused on how the latest surge of coronavirus infections has affected small and medium-sized businesses. The financial services company has been following the impact of the pandemic on these businesses and how they’re adapting, comparing results over time.

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Principal officials say that although the vaccines being rolled out will help, the country still has many challenges ahead in recovering from the pandemic. “With just a few weeks of the new year under our belts, it’s clear that 2021 will continue to be a bumpy road,” said Amy Friedrich, president of US Insurance Solutions at Principal. “Small business relief programs should continue to support stability, but certain sectors may need more support to see any 2021 growth. Patience, creativity, and continued resilience will likely be key traits for businesses in what could be an uneven recovery year.”

Smaller businesses face bigger financial challenges

The study, which surveyed 500 business leaders and compared results from June, September. and November of last year, found that medium-sized businesses were in a better financial position than smaller companies. In November, 41% of small businesses (2-499 employees) said their financial position had worsened somewhat or significantly. Only 17% of the medium-sized employers (500-10,000 employees) reported a similar position. The medium-sized employers said their financial position had improved somewhat or significantly in 63% of responses, only 31% of the small employers reported similar improvement.

The numbers suggest a decline in confidence—in September of last year, 17% of small employers and 44% of medium-sized employers said their financial position had improved significantly. In November, only 10% of small employers expressed significant improvement, and the number had dropped to 38% for medium-sized businesses.

On the other hand, medium-sized businesses expressed more concerns about their long-term prospects. When asked about their level of concern that their company would be forced to close permanently, 62% of medium-sized companies said they were somewhat or very concerned. In comparison, 37% of smaller companies said the same.

A disproportionate impact on rural businesses

The report also focused on the challenges faced by rural businesses. It found that there are discrepancies between how rural and metro businesses are impacted by the challenges of the COVID-19 epidemic.

In the survey, 48% of metro businesses said they were fully operational after weathering the early months of the pandemic. Only 23% of rural businesses said the same. Rural small- and medium-sized businesses also are more likely to describe their local economy in negative terms. Among rural businesses, 31% said their local economy is either declining is struggling.

Only 22% of metro businesses say the same. And rural businesses are more likely to say they feel left out of federal programs to support businesses: 39% of those companies say the federal government has been extremely or somewhat supportive; that number jumps to 64% among metro-based small- and medium-sized businesses.

In addition, more than half of metro-areas businesses surveyed expected to recover within a year (58%), while only 40% of rural businesses said they expected to recover in that same time period.

A rearrangement of priorities?

The report also looked at how benefit offerings might change as a result of economic hardship. Although business owners say they are prioritizing the health of employees, the survey showed that there may be trade-offs among benefit offerings. For example, some companies are considering expanding telehealth services and childcare support, but some may decrease other benefits such as long-term care insurance or hospital indemnity.

“When employers listen to employees and adapt, there are naturally going to be trade-off decisions. Part of the work business owners do is effectively make these trade-off decisions – and continue to make them as employees’ needs evolve and the environment changes,” said Kara Hoogensen, senior vice president of specialty benefits at Principal. “Employers are making changes to best position their business and employees for success. These adaptations are just one more way small businesses are demonstrating their nimbleness and resilience during these unprecedented times.”