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So You Think Small Business is ‘Dead’

September 17th, 2020

Market Views

In late August, comedian Jerry Seinfeld took author / influencer James Altucher to the mat (via a NYT op-ed) on the latter’s widely circulated article that NYC is dead. Irrespective of one’s conclusions on the topic, we can agree that definitive statements calling for the “death” of anything – let alone New York City – can spark strong reactions. We enjoyed reading the moving and funny sparring – see here and here if you missed them.

In our galaxy far, far away – digital private credit – the sweeping proclamation we hear from myriad Cassandras is that “Small Business is Dead.” Given the range of challenges confronting the U.S. these days, how could small business be anything but dead?

We won’t even pretend to possess Jerry’s comedic wit to refute this claim; we are nerdy investors who dig into data and analyze trends. What we see is a divergent experience – one that mirrors the heterogeneity of small businesses: Some have shuttered, some are struggling, some are prodding along, and some are thriving. We also see that many small business owners harnessed their restless energy and resilience to adapt: they changed, mutated, and re-formed to survive and/or bounce back.

According to the U.S. Census Bureau’s Small Business Pulse survey (shown below), in late April, over 50% of respondents stated that the pandemic had a large negative effect on them. As of early September, this number has fallen to around 30%. Over the same timeframe, those that felt the pandemic had little or no effect increased from under 10% to almost 20%.

Data from the U.S. Census Bureau also indicates that the second quarter saw record levels of new business applications – an unexpected trend.

Statistics from our portfolios corroborate an improving environment for small business.  For example, beauty salons – one of the worst-hit small business segments in the country – have been performing at 80% of like-for-like 2019 levels, compared to 10% in April.

The digitization trend exposed the positive impact online adoption has had on small business – from enabling survival to sparking new concepts. One of the best proxies for small business activity in the U.S. is Square, Inc.  According to the company’s second quarter disclosures, over 25% of its merchant gross payment volume came through online channels, almost double the level of the previous year.  Square saw its market cap increase from $36 billion at the end of February to over $70 billion on August 31.

Another example of conviction in small business – and digital credit – is American Express’ announcement to acquire Kabbage, an originator of loans to small business, for a rumored $1 billion. According to media reports, American Express intends to use Kabbage’s technology and suite of products to offer a broader set of cash flow management tools and working capital solutions to small business customers.

Is Small Business Bruised, Beat Up, and Dented? Certainly. Worn Out? Probably. Retooled? Likely. Dead? No way.

See you at the corner store.


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